Your Family Matters: The Importance of Succession Planning in Family Held Businesses

 Corporate Finance Associates Newsletter 2Q 2012

By David Sinyard, Managing Partner
Atlanta Office, Corporate Finance Associates

Developing a succession plan may be the most important business plan a company owner will ever make - it secures their family's future long after they are gone. Yet, the vast majority of family owned businesses do not have a succession plan in place and statistics show that nearly three quarters of family owned businesses do not survive the transition from founder to second generation. Given the importance of such a plan, understanding the obstacles that stand in the way of a successful business succession is the first step to putting a plan in place.

Most family business owners fully intend to keep the business within the family's control, but choices made by the founder can derail such a plan from coming together. One common reason for inactivity is that the founder fears losing control of the business. … Research demonstrates that founders tend to remain at the helm on average between 25 and 30 years. This length of tenure has an effect on how second generation family members view their opportunities.

Choosing a successor from the next generation when there are multiple children presents another challenge. How do make everyone feel as if they have been fairly treated, fairly considered? The natural inclination is to avoid conflict, yet this step often pits one child against another, at least in the mind of the founder.
Equally important, how do you insure that the successor has the skill, experience and leadership qualities needed to carry the company through to the next generation?

…The financial security of the founder is a fundamental concern. …[How] is long term security insured? Often, the founder finances the sale to the successor via a promissory note. Does this really give him any freedom? Are there other choices?



English: Belongs to The Organic Business Guide. (Photo credit: Wikipedia)



…[With] no plan in place, the death or disability of the founder can be disastrous. Unplanned estate taxes or unexpected health care costs can place an inordinate financial burden on a company, severely retarding its short term and long term prospects.

The purpose of a succession plan is to clearly identify a successor, define key leadership and management roles for both family and non-family personnel and formally outline the goals of the business. In addition, it will provide a financial blueprint for transferring ownership. Ideally, a succession plan is simply part of a company's overall strategic business plan.

Components of an effective succession plan include:

• Defining Goals & Objectives - provides the basis for the entire succession plan
• Family Involvement in Decision Making Process - defines a process for open communication and dispute resolution
• Identify the Successor - specifies who will take over ownership of the company and how they will be groomed
• Estate Planning - in the event of illness or death, provides a process for handling inheritance and income streams for both active and non-active family members with specific attention paid to taxation
• Contingency Planning - lists a series of "what ifs" and anticipated actions
• Comprehensive Organization Chart - updates the organizational structure of the company with line of succession and includes potential roles for the retiring founder, shareholders and key advisors like accountants, lawyers and lending partners
• Business Valuation - required as a baseline for determining
• Exit Strategy - explores ownership transfer options including timing and the potential sale or partial sale to a non-family third party

Once a formal succession plan has been created, it must also be reviewed on a regular basis to make sure the plan is amended to account for any changes of circumstance. An annual review may be sufficient.
Given their entrepreneurial traits, founders give much of their energy, time, and emotional well-being to the startup and growing phases of their businesses. Founders hold an influential role over the succession planning process and the decisions of the succession plan lay primarily with them. Without their willingness to embrace a formally constructed succession plan, it will likely not exist and a business without a succession plan is somewhat like an individual without a will. In the unlikely event that disaster strikes, there is no emergency plan, no predetermined leader. Effective succession plans provide a guiding light in times of transition or trouble.

Related articles

• Succession planning do's and don'ts (chicagobusiness.com)
• Succession planning vital for family business (retiringboomer.wordpress.com)
• How to Plan for Succession in Your Business (jasonevanish.com)

Get Paid More with a Seller Note

Corporate Finance Associates Newsletter Q2 2012

By John Hammett, Managing Director
Minneapolis Office, Corporate Finance Associates

Private company owners are always interested in maximizing the value of their company when they sell. … Sellers naturally focus on the nominal valuation of the company. But the value to the seller isn’t just in the price that is negotiated, but also in the terms of the deal. Experienced dealmakers know that the terms of the deal can drive the total valuation from the buyer’s perspective.

The natural inclination of sellers is to favor an "all-cash" deal: …However, this perspective overlooks an alternative that can increase the total value of the deal by 10% to 20%.

This alternative is a "seller note". The seller note means that the seller finances part of the buyers purchase with a promissory note or a loan back to the company. The seller agrees that a portion of the purchase price will be paid three to five years down the road, and he will receive interest payments on the face value of the note. Private Equity firms (financial buyers) have a strong preference for including seller notes as part of their deal terms.

Example
The example of this is shown in the attached chart (FIG 1). The example assumes that the company has EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) of $2 million and that it would be valued in an all-cash deal at 5 times EBITDA for an Enterprise Value of $10 million (left column). It shows an alternative where the seller finances 20% of the Enterprise Value with a seller note at 9% interest (center column) and the difference in cash to the seller (right column).

Buyer’s Perspective
The immediate difference is that the value multiple for the deal with the seller note is 0.5 times … higher than the Typical deal. … There are two reasons why the buyer will pay a higher multiple for a deal with a seller note.




English: Diagram of DuPont analysis of return on equity. ‪Norsk (bokmål)‬: Diagram over DuPont-analyse av kapitalrentabilitet. (Photo credit: Wikipedia)

The first reason is simple math. The buyer’s balance sheet (FIG 2) is composed of bank debt, the buyer’s equity, and sometime, a seller note. Each tranche of capital has a different cost related to it. Bank debt is relatively cheap, with Prime Rate at 3¼% and commercial loans at 6%. At the other end of the spectrum, financial buyers target a rate of return of greater than 25% on their equity investment. The seller note lets the buyer put in less equity … so the deal is more leveraged but still delivers the target rate of return on the equity. This works because seller note carries a relatively high 9% interest rate, but that is still lower than the equity that it replaces. The math works out so that the equity investor gets an even higher rate of return, even though the price paid is higher.

There is a subjective reason why buyers pay more for a deal with a seller note: comfort. … The seller who is willing to leave a seller note invested in the company gives the buyer great comfort that there are no hidden issues that might show up after the deal is closed. This is reflected in a higher price to the seller.

Seller’s Perspective
In this example, the seller gets a 10% higher enterprise value on the company with the seller note. Just as important, the seller gets an opportunity to invest 20% of the proceeds in a high-yield fixed income investment. … The seller note becomes the fixed income allocation of the portfolio. Its performance should certainly beat the returns from most publicly-traded debt securities.

Bottom Line
The seller is making a wise move by selling a private company that is a concentrated , risky, and illiquid asset, and re-investing the proceeds in a portfolio of other investments to provide for future living expenses and to preserve wealth. The seller note should be managed as a core part of that portfolio.

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• 2011 Data: Size Still Drives Private Equity Deal Terms (prnewswire.com)

Healthy Employees Can Boost Your Bottom Line

Baseline.com
By Dennis McCafferty on 2012-05-17


Health (Photo credit: 401K)



A healthy workforce is often a happier and more productive one, and companies are getting the message that investing in employee health can lead to the well-being of the entire organization. Many companies are seeing tangible benefits from implementing health and wellness programs, and many more plan to do so, according to a new survey from the International Foundation of Employee Benefit Plans. … These initiatives are helping cut corporate health care costs. But employers beware: These programs don't create instant payoffs. However, organizations that stick with them will see benefits in the long run. "Determining ROI can be of great benefit for employers, leading to increased buy-in from organization leaders and workers," says Julie Stich, a senior information/research specialist at the foundation. "However, ROI can be difficult to measure. Health improvements may be influenced by a combination of factors, and it takes an average of three years to see cost-saving results." More than 640 benefits/HR professionals, financial managers and other executives took part in the research.

Related articles

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Managing Conflict in a Family-Owned Business (Part 2 of 2)

CEG Worldwide, LLC

By Tom Hubler (Part 2 of 2)

The structure of the matter (second in a series)

Key Takeaways

• The B.O.S.S. concept formalizes how we generate what’s right for the Business, for Others, for our Self and for Stakeholders.
• The approach helps develop collaboration, team skills and common success.
• Regular family meetings keep issues from growing into problems.
• A family code of conduct helps prepare and formalize key ground rules to keep everyone on track as individuals, as a family and as a business.

Part 1 of Managing Conflict in a Family-Owned Business discusses how important it is to raise issues, prepare succession plans and create a common family vision. This form and structure help unite family members in a superordinate goal.

Here I introduce other specific methods to bring structure to family-business issues and to prevent conflict.

Who’s the B.O.S.S.?
The B.O.S.S. concept is a way to remember what the family wants to generate for the...
Business
Others (and what they want)
Self (what you want for yourself)
Stakeholder (including others who share in the business)

…To manage issues and prevent problems, the family carefully considers what must be done to take care of the “B” (Business). Most family businesses recognize this intuitively. It’s just common sense.

What may be less intuitive is recognizing that in order to prevent issues from becoming problems, you must identify what the “O” (Others) wants. … Every family member must understand that they have a commitment to each other’s success. … In this way, kything prayers and the “O” in B.O.S.S. mean the same thing.




Cover via Amazon

Being aware of others unleashes energy because there is psychological engagement within the family. It is strikingly portrayed by author Mihaly Csikszentmihalyi. I summarized his concept with a few quotes taken from his book Finding Flow:

• “An optimal family system is complex in that it encourages the unique individual development of its members while uniting them in a web of effective ties.”
• “A group of people is kept together by two kinds of energy—material energy provided by food, warmth, physical care and money, and the psychic energy of people investing attention in each other’s goals.”
• “When people pay attention to each other or to the same activity together, the chances of finding flow, binding the family, increase.”
• “Only when there is harmony between the goals of the participants, when everyone is investing psychic energy into a joint goal, does being together become enjoyable.”



The Good Work Team: William Damon, Mihaly Csikszentmihalyi and Howard Gardner (Photo credit: Wikipedia)

Csikszentmihalyi emphasizes the importance of putting psychic energy into families. …The point is that good things happen when people are committed to each other’s success.

The first “S” (Self) in B.O.S.S. represents what you want for yourself. With the family as a team, individuals think about what they want for themselves in concert with what others want for themselves and aligned with what they all want for each other. This puts power into the common family vision because family members reinforce the common good. Each trusts that by contributing during their turn, they are appreciated and the trust is returned when others respond as their turns come.

The second “S” stands for the stakeholders. These stakeholders may be nonfamily employees, other family members not engaged in the business, vendors, suppliers and customers. B.O.S.S. thinking helps create win-win rather than win-lose decisions. It helps promote the common good to help the family and their business become vision driven rather than problem focused.

Develop collaborative team skills
An excellent way to prevent conflict is to strengthen family communications using Collaborative Team Skills. This highly successful program created by Sherod Miller helps families successfully manage their differences.
The program helps people learn how to express feelings and wants. When these deep needs go unexpressed, communication breaks down…. I consider listening skills to be the most important way to promote understanding within the family.

Proper listening requires knowing how to respond to different communication styles, map an issue and actively problem solve. Conflict often arises because people don’t listen carefully, or they respond poorly. ...

Hold regular family meetings
In his book Family Business (3rd Edition), Ernesto Poza promotes family meetings. He states that when family businesses have regular family meetings, they become more successful. …

Successful family-owned businesses typically hold three types of meetings:

1. Shareholder and owner meetings that include only those members
2. Meetings designed for employees and family-member stakeholders
3. Family-only meetings that bring together the entire family, including spouses and those not active in the business

Each type of meeting has its own dynamic, purpose and value. Family meetings, in particular, help manage the boundary between family and business. This is where so many potential conflicts can be discussed and resolved. Family meetings build the emotional equity of the family (the psychic energy of Finding Flow) while simultaneously building the equity of the business.

Here are a few of the many ways to build emotional equity in the family:

• Establish and celebrate family rituals and traditions
• Regularly spend informal time with each other outside of the business
• Involve adult children and grandchildren in family-oriented services and philanthropic projects

Prepare a family code of conduct



Code of Conduct (Photo credit: jronaldlee)

Issues raised and resolved in family meetings can be restated as part of a family participation plan or code of conduct. …

Too many family-owned businesses regularly play the game of business without having or regularly reviewing their own sets of ground rules. Or they assume the rules are unchanged and fail to keep them current.

I use this outline with my clients to guide them to their own family participation plans or codes of conduct:

• Eligibility
• Entry
• Summer employment
• Intern programs
• Nonfamily executives
• Full-time employees
• Career planning
• Application process
• Coaching
• Poor performance and termination
• Conduct and protocol
• Compensation

Discomfort around touchy issues is natural in every family and family business. Holding regular family meetings and producing a family participation plan or code of conduct can prevent many of these issues from becoming problems. My mantra for clients is: “It’s always easier to prevent a problem than to try to fix one.” Conflicts become painful only if ignored.

About the Author
Tom Hubler (tomh@thehublergroup.com) is president of Hubler for Business Families (hublerfamilybusiness.com) and an adjunct professor at the University of St. Thomas.

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• Some Suggestions for Family Business (timberry.bplans.com)
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Managing Conflict in a Family-Owned Business (Part 1 of 2) - CEG Worldwide, LLC

CEG Worldwide, LLC

By Tom Hubler (Part 1 of 2)

What advisors frequently overlook can land their clients—and themselves—in hot water (first in a series)

Key Takeaways

• Most families avoid talking about death and money, yet that's exactly what is needed for good business succession and personal estate planning.
• Families avoid discussions because they fear it will create family disharmony, when just the opposite is true.
• Families should develop together a common vision and prayers for each other that reinforce the needs of individual members reflecting their common good.
• Optimize your global tax portfolio/position by understanding where the income gets taxed, and then analyze the after-tax income.

Death, money and sex. In our culture these are the three most difficult things for families to talk about. … Virtually everyone avoids talking about death, money and sex in their families. Do you?



nothıng takes placε but thε placε . . (Photo credit: jef safi)

Unfortunately, when a family-owned business is having a conflict, it is likely that two of these topics must be talked about—death and money. That's because conflict in a successful family business commonly occurs when it's time for succession planning—when the family must decide who will continue the business and how. Many families make the mistake of just assuming who it is that will take over the company and that succession will happen when the time is right. That's where the problems begin.

Estate planners tell us succession is a highly unpleasant subject for families. It requires them to think about death in the family, life without a loved one, taking or transferring assets, and changing responsibilities. For a family business, the discussion seems especially filled with potential landmines.

Family businesses avoid succession planning
Succession planning is not only an issue for the owner-entrepreneur, it's also an issue for the entire family. Many families unconsciously conspire to avoid talking about ownership and management-succession planning. …




Pugh's Garden Centre A family-owned business at Morganstown, near Radyr. The wooded edge of Garth Hill can be seen beyond. (Photo credit: Wikipedia)

My clients will say, “It's too early; we have years to think about this.” Or “I don't have time right now.” Or my favorite, “We don't need all that structure and formality because we love each other.”

Actually, it is because you love each other that you need all that structure and formality. It helps you avoid the emotional tripwires and makes the rational path more visible. However, that path must include more than just plans for ownership and the estate.

As I stated in a previous article, it is futile to produce a succession plan by focusing on just the ownership (and estate) plan. A smart succession plan must also consider the owner-entrepreneur's overall intention. It must reflect a core purpose that includes legacy and family intentions as well as the business purpose.

Legacy is more than an entrepreneur's wish for “how I want to be remembered.” A sense of legacy drives the entrepreneur to develop a succession plan. Concern for a legacy creates the motivation.

Start by discussing legacy



Motorhomes lined up for sale This family owned business developed from a haulage firm. They now sell new and used motorhomes. (Photo credit: Wikipedia)

… There are two aspects to legacy: your gift to the future and how you want to be remembered. The first aspect, discussed by Laura Nash in the Harvard Business Review article “Just Enough,” defines “your gift to the future” as a means by which “you help others find future success.”

The second aspect—how you want to be remembered—is my definition. It focuses more personally on how an individual wants to be remembered and is highly emotional because virtually everyone in their 60s and 70s wonders at some point whether their lives have meant something. …

A technical planner can ask:

• “How do you want to be remembered?”
• “What is your gift to the future?”
• “How can I help you achieve those goals?”

Ask legacy questions like these so that owner-entrepreneurs will engage in succession planning. This helps avoid a lot of unnecessary conflict that could surface later.

Conflict accumulates when differences are not discussed

Conflict in family-owned businesses can also increase because family members simply try to avoid it. When I taught the Family Business Management class at the University of St. Thomas, I regularly brought up the famous Hubler Speck of Dust Theory to explain what I often saw happening in family-owned businesses.

 

Nursery Center has been a family owned and operated business since 1990. Website: nursery-center.com (Photo credit: Wikipedia)

In my Speck of Dust Theory, an issue or irritation triggers differences in the family-owned business. Family members say to themselves, “If I bring that issue up, it will upset the entire family and ruin our 4th of July picnic at the lake.” That speck of dust—that issue—is not discussed.

Sometime later, another issue surfaces. The conflict isn't mentioned because it could spoil Thanksgiving or Christmas, or an upcoming wedding, birthday or graduation. Irritation accumulates into ever-greater annoyance because no one is willing to bring up an issue. The family creates the very disharmony they are trying to avoid by failing to talk about their differences.

Speck-of-dust issues can grow into a ton of discord. Yet these issues are normal and should be aired. (See my partial list of potential issues.) Every family and family-owned business has issues. They become problems only when they are avoided and not discussed.

How to prevent and manage problems in family-owned businesses

The best way to avoid conflict is to keep issues from becoming problems in the first place. To do this the family should create a common vision that unites everyone at a superordinate level. …

Typically, one would urge compromise … Yet when individuals are asked to compromise, they generally feel like they are conceding or giving in. Instead, the family should be encouraged to understand that this is a negotiation that involves cooperation. Everyone is working together for the common good of the family and the business…



individual -v- group (Photo credit: Sean MacEntee)

Individuals recognize that it is unrealistic for each person to get 100 percent of what he or she wants. Instead, each family member is contributing to reflect what's best for the family vision. … Each understands that “just as I contribute, other members of the family will do the same when their turn comes.” And the others' turns always come.

Develop a family vision
To begin, the family creates a list of values that everyone can embrace. These high-level principles are discussed and developed into a brief paragraph that truly reflects what the family believes about themselves and their values. …

I also encourage families to adopt or develop their own family prayers. Here is a typical example:

Family prayer for loving kindness
May our family be filled with loving kindness.
May we be well.
May our family be peaceful and at ease.
May our family be happy.




NEOSHO, MO- JUNE 17: A Twister Safe sign for a small family business that specializes in constructing safe rooms stands June 17, 2011 in Neosho, Missouri. A surge of interest in safe rooms has been seen since an F5 tornado tore through Joplin, Missouri in May. (Image credit: Getty Images via @daylife)

As family members cooperate to develop their family vision statements and prayers, I encourage individuals to prepare their own personal value statements. …

The prayer and vision statements should be clear and brief enough to be recited daily. Because they are developed through family cooperation, these statements resonate across the family and truly reflect the interests of everyone.

Finally, I encourage family members to think about each other daily through brief kything prayers. Kythes are the vision statements of family members. They are put in the third person and reflect what that person wants, needs or values….

Conclusion
By encouraging your family business clients to talk openly and strategically about death and succession, you can help them preserve substantial wealth and family harmony—and solidify your role as a trusted advisor and confidant.

About the Author
Tom Hubler (tomh@thehublergroup.com) is president of Hubler for Business Families (hublerfamilybusiness.com) and an adjunct professor at the University of St. Thomas.

Related articles

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JOBS Act Risk Disclosures IPOs

The new law, which loosens reporting requirements for smaller businesses, has prompted some companies to actually add information to their regulatory filings.

CFO Magazine
Sarah Johnson

In the run-up to Facebook’s initial public offering, which is expected to happen within days, smaller, lesser-known companies are preparing for their own foray onto U.S. stock exchanges as well. Naturally, they are alerting investors in public filings that their small stature and lack of public-company experience can make investing in their stock a risky endeavor. Some are going even further and emphasizing that the Jumpstart Our Business Startups (JOBS) Act is itself a risk factor.




Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

Over the past week, at least 13 companies … have warned investors in their prospectuses filed with the Securities and Exchange Commission that the JOBS Act’s breaks on SEC rules could actually be a turnoff. “We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors,” reads a statement in boldface type by Cimarron Software in an S-1 form submitted to the SEC yesterday.

The trend may reflect an unintended consequence of the JOBS Act, which lawmakers hope will lead to a more active IPO market, according to Michael Stocker, a partner at law firm Labaton Sucharow, who represents institutional investors. The filings are saying “that because the companies are willing to take advantage of the related standards for disclosures under the JOBS Act, one real risk is that they will be punished by investors, since investors won’t be getting as much information and they may have less confidence in how the companies are doing,” says Stocker.




What investors want (Photo credit: tjohansmeyer)

Indeed, so-called emerging-growth companies — those that take in less than $1 billion a year in revenue — can wait up to five years after their IPO before following all of the rules that larger listed businesses have to follow. They can submit two audited financial statements with the SEC instead of three, they can avoid holding say-on-pay votes, and, most significantly, they are not required to get their auditors’ signoffs on internal controls over financial reporting.

… Not all companies preparing for an IPO that qualify as emerging-growth companies have included the law as a risk factor.




Logo og McDermott Will & Emery (Photo credit: Wikipedia)

However, they may want to consider doing so, according to Thomas J. Murphy, a partner at law firm McDermott Will & Emery who helps companies with their public offerings. “It’s cheap insurance and good disclosure to call out for people places where you differ from other public companies,” he says.
The additional disclosure implies the company using it is trying to be comprehensive. Moreover, the lines of text may help it later on if it runs into trouble. “If an emerging-growth company has a failure of its controls and has to restate its financial statements, the disclosure is going to be a plus when that company defends itself against a lawsuit,” Murphy says. The business can respond by saying, “We warned you that there weren’t auditors looking independently at this.”

The plaintiffs’ bar could have a retort, however, Stocker suggests. “All the disclosure says is that because of the JOBS Act, the company’s stock may not trade as high a volume or [for as] good a price as you may hope,” he says. “It’s not saying because of the JOBS Act you may get a nasty surprise at the end of five years.”

Related articles

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Ten Laws Of The Modern World

Forbes.com
Rich Karlgaard, 04.19.05, 10:00 AM ET













Gordon Moore on a fishing trip (Photo credit: Wikipedia)

• Moore's Law. … This April marked the 40th anniversary of Gordon Moore's famous dictum. In 1965 Moore (he co-founded Intel three years later) noted that components on silicon chips were doubling every year. In 1975 he amended that to every two years. Today Moore's Law has transcended silicon chips. It has become a way of saying that all digital stuff, from PCs to cell phones to music players, get twice as good every 18 to 24 months--at the same price point. …

• The Back Side of Moore's Law. This one says that digital stuff gets 30% to 40% cheaper every year--at the same performance point. The back side of Moore's Law is why your $299 Treo 650 is as powerful as a $3,500 Compaq PC was in 1988. …




Moore's Law as applied to Intel processors, from the 4004 to the Pentium. (Photo credit: Wikipedia)

• Andy and Bill's Law. The origin of this was a funny one-liner told at computer conferences in the 1990s. It went like this: "What Andy giveth, Bill taketh away." It meant that every time Andy Grove--then chief executive of Intel (nasdaq: INTC - news - people )--brought a new chip to market, Bill Gates--then CEO of Microsoft (nasdaq: MSFT - news - people )--would upgrade his software and soak up the new chip's power. … Moore's Law constantly enables new software. Often the new software is just an incremental improvement. But every few years the world gets a wild breakthrough--graphic computing in the 1980s, Web browsers in the 1990s, fast search engines today. …

• Metcalfe's Law. This one's named after Robert Metcalfe, the inventor of the computer networking protocol Ethernet. Metcalfe said the usefulness of a network improves by the square of the number of nodes on the network. Translation: The Internet, like telephones, grows more valuable as more join in. …




Image via CrunchBase

• Gilder's Law: Winner's Waste. The futurist George Gilder wrote about this a few years ago in a Forbes publication. The best business models, he said, waste the era's cheapest resources in order to conserve the era's most expensive resources. When steam became cheaper than horses, the smartest businesses used steam and spared horses. Today the cheapest resources are computer power and bandwidth. Both are getting cheaper by the year (at the pace of Moore's Law). Google (nasdaq: GOOG - news - people ) is a successful business because it wastes computer power--it has some 120,000 servers powering its search engine--while it conserves its dearest resource, people. Google has fewer than 3,500 employees, yet it generates $5 billion in (current run rate) sales.




David Ricardo Français : David Ricardo Deutsch: David Ricardo (Photo credit: Wikipedia)

• Ricardo's Law. The more transparent an economy becomes, the more David Ricardo's 19th-century law of comparative advantage rules the day. … Which means if your firm's price-value proposition is lousy, too bad. The world knows.

• Wriston's Law. This is named after the late Walter Wriston, a giant of banking and finance. In his 1992 book, The Twilight of Sovereignty, Wriston predicted the rise of electronic networks and their chief effect. He said capital (meaning both money and ideas), when freed to travel at the speed of light, "will go where it is wanted, stay where it is well-treated...." By applying Wriston's Law of capital and talent flow, you can predict the fortunes of countries and companies.




Laffer Curve (Photo credit: Wikipedia)

• The Laffer Curve. In the 1970s the young economist Arthur Laffer proposed a wild idea. Cut taxes at the margin, on income and capital, and you'll get more tax revenue, not less. Laffer reasoned that lower taxes would beckon risk capital out of hiding. Businesses and people would become more productive. The pie would grow. Application of the Laffer Curve is why the United States boomed in the 1980s and 1990s, why India is rocking now and why eastern Europe will outperform western Europe.

• Drucker's Law. Odd as it seems, you will achieve the greatest results in business and career if you drop the word "achievement" from your vocabulary. Replace it with "contribution," says the great management guru Peter Drucker. Contribution puts the focus where it should be--on your customers, employees and shareholders.




Cover of Ogilvy on Advertising

• Ogilvy's Law. David Ogilvy gets my vote as the greatest advertising mind of the 20th century. The founder of Ogilvy & Mather--now part of WPP (nasdaq: WPPGY - news - people )--left a rich legacy of ideas in his books, my favorite being Ogilvy on Advertising. Ogilvy wrote that whenever someone was appointed to head an office of O&M, he would give the manager a Russian nesting doll. These dolls open in the middle to reveal a smaller doll, which opens in the middle to reveal a yet smaller doll...and so on. Inside the smallest doll would be a note from Ogilvy. It read: "If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants." Ogilvy knew in the 1950s that people make or break businesses. It was true then; it's truer today.

Related articles

• The Other Moore's Laws (neatorama.com)
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4 Ways to Unlock Yourself from Chronic Frustration

PickTheBrain Blog
Written by Lisa H. Wright

Photo credit: ‘Unlock‘ by Big Stock

… Frustration, at its core is wanting something to be other than it is: A different time; a different place; a different color; a different job; a different feeling; a different person. It doesn’t matter what it is, you just want it to be different ….

For many us, a lot of our frustration comes from our deepest desires being constantly unmet.  If you’ve been chasing something for years, and don’t feel like you’re getting any closer, you’re going to feel frustrated.  There may be times when you feel like screaming to no one in particular, “Just give me what I want already!”  And for some of us, it’s other people who seem to be our primary source of aggravation.  They’re simply not cooperative, courteous, appreciative, or thoughtful enough for our liking, or maybe they just refuse to see things our way.




frustration. (Photo credit: nicole.pierce.photography ♥)

So what is it that has you pulling your hair out, swearing under your breath, and banging your head against the wall?  Who is it that has you completely mad?  Is it your boss?  …

All of these examples are common sources of frustration, and most of us learn to deal with and accept them.  However, some problems can get you so down, that they can negatively affect the quality of your life.  You could find yourself so overwhelmed and beat down by frustration that you start spending your days wallowing in despair.  Also, chronic frustration will eventually rob you of your motivation, and have you ready to just give up.

Unlocking yourself from feeling chronic frustration is not as hard as it might seem at first glance.  But it does require a drastic change in attitude.  You must resolve to stop giving in to feelings of hopelessness, and start finding solutions.  Here are four good tips for freeing yourself from the clutches of frustration:

Find A Way to Vent
A big part of frustration is the feeling that nobody’s listening, nobody understands, or nobody cares.  Finding effective ways to vent and be heard can go a long way towards curbing the feeling of being totally flustered. 

…  Heck, sometimes all it takes is the willingness to open up to a trusted friend or relative, and confide in them some of your struggles.  Although your problems won’t vanish instantly, the burden of carrying your angst in silence will be lifted considerably.

Set Goals
The most maddeningly frustrating thing about most bothersome situations is the feeling that you’re just treading water; in other words, you’re going nowhere.  However, by setting goals you’re taking definite action towards a solution, or resolution of some sort.  The knowledge that you’re actively working on the problem instead of just being frustrated about is very reassuring, and can help abate any feelings of defeatism trying to creep in… .

Change Your Perspective



Three Ising spins on a triangle for illustrating frustration (Photo credit: Wikipedia)

Rarely can you come up with an effective solution to a problem or challenge when you’ve given into frustration about it.  One way to free yourself from this trap is to change your perspective, so that you can see the positive in your situation.  Are you frustrated over work, or one of the lucky ones to have a job?  Is your wife driving you crazy, or are you counting your blessings that you have someone?  Is a client slow to pay, or are you fortunate to have clients?  Surprisingly, when you shift your stance this way, uncanny solutions to your problems often show up right out of the blue.

Get Creative
It’s a good idea to start thinking outside the box for clever solutions, strategies, and other ways to tackle frustrating problems.  Are the pounds coming off too slowly?  Start walking or biking to work!  I’m serious!  I used to do it, and trust me; I was adjusting my belt notch every two weeks.  As an added bonus, the additional exercise was an unexpected mood booster, and I felt much less frustrated in general.




Problem solving process (Photo credit: coach_robbo)

Are you frustrated that money is always tight?  Then it’s time to take a hard look at your talents.  …  Everyone has a talent at something, or expert knowledge on some subject. Brainstorm long and hard, and find a way to use the Internet to get started.  This can work full-time, or in your spare time.

… The list can go on forever, but the aim is to tackle your money problems head on, and alleviate your frustration by bringing in some extra bucks – and doing something you’re already good at.




Depiction of frustration (Photo credit: Wikipedia)

Let’s face it:  frustration is a part of life.  As long as we want anything, frustration is bound to follow at least some of the time.  In addition, other people have their own quirks, habits, and idiosyncrasies so frustration with them is inevitable at some point.  Regardless, we don’t have to stay down in the dumps, or get depressed when things don’t go right.  Life will always present us with challenges, problems, and difficulties to deal with.  Our job is to stand tall in the face of problems, and discover ways to solve them.  Then you’ll find your chronic frustration has been replaced by a much more welcome guest:  peace of mind!
—-
Lisa H. is a mother, blogger, runner and happiness seeker. Her blog, Getting to Zen inspires personal success through action. If you want to awaken your spirit, you can subscribe here.
In addition to blogging, Lisa is a co-author of Overcoming Fear: Sticking it to What’s Holding You Back, a unique program designed to help you get out of your own way and create the life that you want. To read more of Lisa’s articles, visit her blog.

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Rory Sutherland: Perspective is everything

10 big mistakes successful leaders make

CBS News

By Steve Tobak

(Photo courtesy Flickr user Alex E. Proimos)

(MoneyWatch) COMMENTARY Executives and business leaders don't just peak and lose their potency over time, like wine. They change. … Success affects everyone differently and not necessarily in a good way.…

If you know a little about human psychology, that shouldn't surprise you. You've got to really know yourself, possess unusual self-confidence, and be pretty well grounded in reality to withstand the ego-inflating onslaught of winning big in business.

Since we're all human, we're all susceptible to the unusual pressures and pitfalls that come from achieving what we've always dreamed of. In my experience, these are the ten most common traps successful leaders fall into.




Image via CrunchBase

Becoming the status quo. Startups often break into the market by challenging the status quo. The problem is when success makes them the status quo, yet they don't realize it. That was evident when Apple and Google challenged the BlackBerry with the iPhone and Android platform. It's ironic that RIM's co-founders forgot that they were once the challengers. …




Image via CrunchBase

Tunnel vision. They lose perspective and become rigid, sticking to their myopic vision like glue. Since competitors are unpredictable and markets are always evolving, it can be deadly to a business. If their vision fails to gain traction, they often double down and become even more grandiose. …

Losing their fear. Fear is a key emotion that warns you when to be alert and when you need to act. When you start to think that success is inevitable and believe you can't fail, you act irrationally, become reckless and take risks you shouldn't or without due consideration. …




Image via CrunchBase

Fear of losing. The opposite of becoming fearless to the extreme is becoming too risk averse because you're afraid of losing what you've won. … Once that fear of taking chances sets in, you're business is doomed.

All knowing. They stop asking questions and don't really listen when key stakeholders -- customers, executives, directors, investors -- tell them something they need to hear. They think they have all the answers, that they're the smartest guys in the room. They miss critical warning signs.

Isolated. … They become insular in their thinking and cut themselves off from others with layers of bureaucracy and hierarchy. There are also usually physical manifestations like executive offices, suites, buildings, and assistants to keep the masses out.

Controlling. In the name of maintaining a culture of entrepreneurship, they become obsessed with keeping things the way they are. That often translates to micromanaging and controlling every little thing. They fail to let go by adding processes and infrastructure that growing businesses need to effectively scale. …

Surrounded by yes-men. There will always be weak-minded lackeys that tell leaders what they want to hear and sugarcoat negative news to gain favor. But their power only comes from weak leaders with low self-esteem that need their egos to be constantly pumped up.

Lost the magic. Business success is nearly always the result of a number of factors. Sure, there's a product or service that customers are excited about, but there's also pricing, timing, partners, even luck. Whatever the combination, it's tempting for successful entrepreneurs to think it's all about them, not the "magic formula" that got them there.

If I build it, they will come. Entrepreneurship works in America because anyone with an idea can get funding and, if the stars are aligned, develop a hit product or service. To get out of the "one hit wonder" phase and develop a second and third successful product, however, requires a willingness to embrace marketing, sales, operations, customer service and other business functions.

© 2012 CBS Interactive Inc.. All Rights Reserved.

Steve Tobak is a consultant and former high-tech senior executive. He's managing partner of Invisor Consulting, a management consulting and business strategy firm. Contact Steve, follow him on Facebook, or connect on LinkedIn.

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