Fridays With Vistage Webinar: Are You Focused On Making the Right Decisions as a CEO?


Hello everyone, and welcome to today’s Fridays With Vistage webinar. I would like to introduce the moderator for today’s webinar, the Vistage Director of Research, Anne Petrik. Anne, thank you so much.

Anne: Today’s session, Are You Focused on Making the Right Decisions as a CEO? is based on research conducted by Vistage that revealed the key decisions and investments CEOs of small and mid-sized businesses were focused on in 2018. Now that it’s the end of the second quarter, some of the latest research from the Q1 Confidence Index Survey as well as the recommendations for how you might approach talent, customers and operations through the rest of the year. Today’s session will be a discussion with Vistage Chief Research Officer Joe Galvin and business strategist Marc Emmer.

So to introduce our speakers, Joe Galvin is the Chief Research Officer as I mentioned, which is the research arm for Vistage Worldwide. Vistage provides members with the most credible data-driven and actionable thought leadership on the strategic issues facing CEOs, as well as key executives in small organizations through collaboration with the Vistage expert community and creation of content. Vistage members can benefit from this business research, specific to small and mid-size businesses. We are the most-trusted resource for research data and expert perspectives on the issues and topics of high performance small and mid-sized businesses. Welcome, Joe.

And next we have Marc Emmer who’s president of Optimize Inc., a growth consultancy specializing in strategic planning. Marc speaks, writes and consults throughout North America and is a recognized thought leader on the topic of strategy. Marc’s second book, Momentum: How Companies Decide What to Do Next, was released this month and was covered by Yahoo! Finance, CNBC and CBS. Marc has crafted strategic plans for over 130 organizations including more than 40 Vistage members, and is a member himself. Welcome, Marc.

So today we’re going focus on the SMB CEO and our agenda includes reviewing CEO confidence both in the economy as well as growth for their own businesses. We’ll look at the major decisions and investments from 2018 and what those leaders are focused on. Then Joe and Marc will talk about strategy in the areas of talent, customers and operations. And at the end, Marc will summarize for us the top ten trends for SMB CEOs. Joe, first let’s go into confidence in the economy and what we learned in our latest survey,

Joe: Thank you, Anne. Four times a year we survey the Vistage member base, and we focus specifically on those members with CEO, Business Owner, and President titles to understand what their thoughts are regarding confidence in the economy, their own performance, and the things they’re doing to drive growth in their organizations. We’ve been doing this for 14 years and its given us a long-term view of what our members think and how that connects to the actual economy. In our most recent survey we did in March, we had over 1,700 responses. What you see is, it’s slightly off a couple points from the 110.3 in Q4. I would comment though, when taking on the long run, 110.3 is a ten-year high. So we’re just off a ten-year high of confidence, meaning our CEOs are extremely optimistic about the state of the economy, the state of their businesses, and where they see that going. And where the index gets really powerful is when you now lay it over an index of GDP, and you’ll see that the sentiment of the confidence level of our community is a direct predictor of how GDP will follow.

As you look at this and you look back to 2013, you can see and kind of use the end of the Great Recession, is that we’re close to, if not at a historical ten-year high. So it’s clear there’s a high degree of confidence and energy in our community based on this response. You take that to the next level and now we get into some of the specifics on these questions, when we talk about confidence, what we see is 62% think the economy is improved. Now that’s a slight decline, but remember we’re coming off a ten-year high. 35% of CEOs expect the economy to continue to post gains, and this is on top of the gains that we saw last year and the prior year. This long, slow recovery experience of the Great Recession, these are all compounded upon those levels of growth. Marc, let me ask you really quick to jump in- what do you see and what are your thoughts on the folks you work with as it relates to their confidence in the economy’s ability to sustain their growth?

Marc: I think part of what is manifesting right now and is often referred to by economists is a phenomenon known as animal spirits. Meaning that the capital markets react based on common emotion. After the election there was a lot of euphoria about the prospects of tax reform and reduced regulations, and I think some of that euphoria has worn off and there’s some fear based on the news cycle about North Korea, the trade war, and just general political uncertainty. The markets are very skittish, and us entrepreneurs get caught in a trap where we react to what we read. So I think we need to take a long-term view, and they are still calling for a recession. It’s not a matter of if, but when. So this is the time to make hay and I think one opportunity that every business member should be thinking about is this is a time we can take price increases. It’s the first time in maybe six or seven years that a lot of companies have felt they’ve had that opportunity, and frankly a lot of them have forgotten how. It’s important to think about how to message that. If you want an ROI from this right away, if you haven’t done it already, I encourage you to think about price increases and putting that in motion pretty quickly. I’m not sure we’ll have this same opportunity a year from now. Overall, I’m very bullish on the economy as well in the short term, and I feel the confidence out there. But I also think we have to have a lens out for what’s coming a couple years out.

Joe: Great, thank you Marc. We shift our discussion now to the actual performance. Again we see some incredibly strong numbers. 79% of CEOs expect increased revenues in the year ahead. That’s built on the prior year’s performance. 66% are expecting increased profit. So three fourths are going to revenue, and two thirds are going to profit. I think this connects well to Marc’s point earlier about the strength of the economy and the confidence. We have historically low interest rates. We have easy access to capital; it’s a great opportunity and a great time for those organizations to grow. Thoughts there?

Marc: Agreed. I think what we’re seeing in budgets in 2018 is a lot of investment in people and knowledge. And as I mentioned, I think that a lot of people feel that especially their margins have been under a lot of pressure and might get some relief this year.

Joe: That connects brilliantly to the next category, which is really for growth. We see 64% of CEOs plan to expand their workforce in the year ahead. I wonder how many folks listening now are in the process of adding headcount. 54% are going to increase investments in the next year. That’s on top of the investments they’ve made before, so I think to reinforce what Marc said, I refer to these as the good old days. We’ll look back on this period of time and think, wow, those were the good old days. Because the Fed’s already indicated there’s three inters rate hikes coming this year and 3-4 more next year.

So expanding now, let’s go from where CEOs are thinking in terms of their optimism, their performance and their plans for growth, and let’s understand what their decisions are. This is information we asked for back in December in our Q4 Confidence Index. We asked every year, “What are the major decisions our members are making?” One of the things we try to do at Vistage research is to recognize that we don’t necessarily have the answer to the questions; our job is to raise the questions. We ask, “What are the major decisions you’ll have to make regarding your business in 2018? What do you think the top ten are across the community?”

We’ve got a great community who responded to our survey and this is what we learned. We leaned talent, growth, acquisition, expansion, hiring, market development, staff/employee/personnel, investments, sales, strategy, capital/cash and management. When you take the top ten and group it against all the 3,000, what we found is that these major decisions fell into five logical groups. The first being talent, which is the people that you have and the people you’re training. The next being customers- how you find more, win, retain and grow more. Operations, which is unique to your business. It means one thing in a manufacturing environment and something different in a business services environment. Financial, which is both the financial function of your organization and the financial performance. Then, leadership. What jumped out here was that talent was at the top, and 931 people, which represents roughly 87 percent of CEOs who responded who have talent as one of their top three issues.

So these were the decisions our members have told us they’re making and those are the top ten. Now we ask, “What are the investments you’ve made? What are the top three areas of your business that you’ll invest in during 2018? So I ask you to stop and think about your investments, and where will you be putting money in place. And again, our top ten list has a shift to it from last year and I think this is reflective of access to capital and low interest rates. But we see a real surge into the operational side. And you see that reflected in technology, equipment, facilities, office buildings, growth, expansion, acquisition. Again, commenting on this confidence and the energy we see, you can have a tailwind and we see this major shift in terms of investments that people are investing in their technology which is part of their information infrastructure. This is where we see our members investing going into 2018.

Anne: Thank you, Joe. It seems like now is the time to capitalize while the economy is strong as only 35 percent of our members expect the economy to post significant gains. I hear you, Marc, about the price increases and how that might be a key art of those increased expectations for revenues and profits. But now let’s switch into those key decisions that Joe just mentioned for 2018. You talked about the two business decisions the data showed, and that seems to be talent, customers and operations so we’re really going to focus on those three areas today. And first focus on the area of talent. Joe can you share with us more detail about the plans of small business CEOs as they approach talent?

Joe: Talent has come up consistently both last year and this year as one of the top decisions and top areas of investments that CEOs are making. And as we saw in the earlier chart, 64% of CEOs are planning for a workforce expansion. This creates what we refer to as a talent war. And that is a current unemployment rate of 4.1- that varies regionally- but effectively we’re at full employment which means there is a not a pool of skilled people like maybe there was in 2009-2010 following the layoffs of the Great Recession. There’s that skilled, talented people looking for work.

Rather, there is work and a lot of work, looking for skilled and talented people. And this has a range from CEOs down to your entry level baseline workers. We’ve heard stories about varying businesses and their ability to add more trucks to their fleet because they can’t get more drivers. Another scenario: a woman-owned manufacturing company in the Midwest, seven out of ten applicants for the line work can’t pass a drug test. So there’s tremendous pressure on organizations to find talent in a pool where there’s just not a lot of talent available. And that’s created the talent wars. And it begins to ask people, while you’re looking to acquire new talent, everyone else is as well. In fact, there’s a follow-up to this and you see we’ve broken this out. We ask who’s hiring and how are they hiring. 46% are hiring throughout the year. Now look at the skews from Q2 to Q1 of next year. I think this supports some of the commentary about the slowing of the economy possibly in 2019, but it also suggests that right here, right now, the battle for talent is on because this means that 75% of the people that are hiring and that 64% of the businesses out there are hiring right now. This puts tremendous pressure on organizations in a somewhat different way because it says much about what you are doing to protect, to retain, to develop to motivate, to engage your existing workforce, as it is to go out and attract, to draw in someone new to your organization. I’m quite confident during the time that we’ve been engaged in this conversation.

Someone in your organization got a call from a recruiter that they are constantly being approached, as probably many of you are constantly being approached. And the question is, will they answer that call? And it turns into this discussion that, because before we can talk about growth, before we can talk about adding new people, we have to ensure that the people we have in place are happy, are motivated, and are willing to speak positively about the environment. That sets up this new playbook for talent, and Marc I thought maybe you could share your thoughts on this and the talent drivers and commentators on this talent war?

Marc: I think what the survey says is that acquiring and training talent is kind of viewed as a significant strength constraint for growth, and I think part of that is because the HR playbook is being rewritten because the traditional rules of engagement no longer apply. So for example, I think the traditional recruiting model is deeply flawed. I had 4% unemployment- you don’t have the luxury of waiting to recruit at the time you need people, and then go through a four-week process by which you run an ad and try to find your dream candidate. Employers are learning they really can’t assess someone’s skills in a one-hour Q&A. The whole system just really doesn’t work, so I think recruiting needs to be a 24/7/365 endeavor and the entire company has to be involved.

If you’re truly going to be an employer of choice, employer branding has become really critical and you need to tell your story all the time and have a pipeline of candidates in place. We’re also seeing a different evaluation of candidates in a more formal way, so I recommend all members read Topgrading and get their entire management team involved in a more methodical kind of interviewing methodology. We’re also seeing more personality testing skills, testing internships, trials, kind of other forms of assessments.

Attracting millennials requires a completely different playbook. There was an interesting speaker last year named Ben Casnocha, and he led recruiting for LinkedIn. He pointed out that these employees look at their work more like a tour of duty. We as employers need to think about it in a similar fashion. For example, if our paradigm is that we don’t want to train people because we’re concerned they’ll leave, guess what? They’re going to leave. It’s about enriching their resume for them, so a more effective method is to fully engage, have frequent feedback loops, and talk to them about their career progression. Then eventually if they separate, so be it. But I think you’ll get much better work out of them, referrals to their friends, and more responsible transitions if you engage with them regularly about their career progression.

Also, with all these transgressions we’ve seen in the business press, and the need for millennials to be more connected with something larger than them, companies are being far more transparent than they used to be and they’re also working toward gamifying their businesses, so employees have incentives tied back to KPIs, and KPIs tied back to their strategy. Finally, I think paying at the 50th percentile is just not cutting it for a lot of companies anymore. There are markets like Denver where unemployment is more like 2%, and our clients can’t hire people at any wage. So if you want to hire, retain really successfully and be an employer of choice, having the right work environment and making damn sure you’re compensating appropriately is more important than it’s ever been.

Joe: Marc, I want to build on that because we had a conversation in one of our network events about the power of culture. It’s the culture of your organization that attracts, rejects or pushes away prospective employees. If you measure your own level of employees in terms of net promoter score, how willing are your employees to go out and positively promote your environment as a place where people want to work? That turned out to be one of the strongest tactics people are using- the power of their culture to draw in people who want to be part of that culture.

Marc: There’s a way you can measure and quantify that. The employers of choice we work with who are most savvy- one thing they do is survey their employees regularly. What they learn in that survey, they play back to their employees as some kind of culture initiatives and they actively engage their employees or committees, therefore proving they’re listening and that the employees are truly part of something larger than them.

Anne: Thank you Marc, it sounds like putting more formality in terms of assessments you might use, 24/7 recruiting, and I love the idea about actually capturing data and projecting that back to the company and really sharing with employees the ides about how you’re going to improve their experience. One thing you noted is talent can be a constraint for growth, so our next topic is customers which was a key area that CEOs focused on in the coming year. Joe, can you share what we’ve learned about customer growth from some of our prior research?

Joe: We did a study last fall that we shared with our members, customer growth, decisions for the SMB CEO, and were focused on our model of customers and customer growth. the strategies, investments. What were the winning factors? We wanted to separate high performance from no or low performance. We segmented the responses to 28% of those organizations that were multiple-year double-digit growth. Double digit growth the prior year, projected double-digit growth current year. We compared those companies who for two consecutive years who had zero to no growth, so about 8%. And we said, what are the high-growth doing that the low-growth aren’t doing? We cited a variety of factors. One of the things that jumped out was that the high-growth businesses were more focused and are more likely to get more new customers than the existing no-growth. We know new customer growth is hard. It’s the hardest thing to do, to get a new customer, identify their needs, and then fulfill so they will continue to do business. The power of this is really quite simple because last year’s new customer is this year’s revenue base. It’s the high-growth organizations that are addressing the changing environment of buying and selling. That environment changed since I started selling in 1984. It’s just a continuation, a different type of change. We see these high-growth companies focusing on customers, they understand and put the energy and resources toward acquiring new customers. What that leads to is the old playbook and the new playbook. So Marc, share your thoughts on this evolving customer engagement and those value drivers.

Marc: I think client acquisition is undergoing a radical shift as we speak. Clients used to want to meet with us face to face, now they want to read about us on the internet. Many of our clients are subjected to that evil known as professional procurement, and more than half of professional procurement people today are millennials. There are Vistage members who are stuck in a paradigm where they don’t think they win business online so therefore their online presence is not important, and I would say that even if you’re not accustomed to wining business online, your certainly being validated there. And I think more importantly this is where we’re headed. Kind of in a galaxy near you very soon, prospects will click on your website, the shrewd marketers will have this very sophisticated way of engaging those prospects and capturing their information. The opportunity will automatically be routed to the appropriate salesperson based on the prospect’s geography, industry or perhaps their company name or size. They will immediately get a digital customer welcome packet that’s highly tailored with messaging about why your company is the right partner to fulfill their particular need. All their information including what they clicked on on your website will be populated in your CRM, which will auto-generate a request to a salesperson to meet with them. Then the CRM will track every activity over the course of the customers lifetime.

Most of those capabilities I just mentioned are already commercially available today. What’s really telling in the earlier slide in terms of 2018 investment, it sounds like growth was 2x for marketing what it is for sales which reinforces the power of these tools that are in front of us. The salespeople of tomorrow will not be the traditional relationship sellers. If they’re the type of people who they think a relationship is bringing donuts to the client, talking about baseball, I don’t think they’re long for this world. I’m not discounting the importance of customer relationships. What I’m saying is, both B2B in B2C, customers are far more informed than they’ve ever been. They’re going to gravitate to vendors who can provide end-to-end solutions. In doing so they’re going to eliminate vendors and work with the ones who are most capable.

Unless your selling something highly commoditized like in a call center environment, your salespeople are going to need to be technology-savvy and capable of selling into strategic accounts.

We’re going to see the segmentation. Back to the 20 rule of high value accounts and low-value accounts. Artificial intelligence is only going to become more accurate as we feed the beast. All the strategies I just mentioned will be equally or more important for client retention as they will be for client acquisition. Finally, I think distribution as a channel is under a ton of pressure because companies want to have the opportunity to sell direct online. If you’re a manufacturer and you’re in that conundrum, there are ways to sell direct while also protecting your distributors. I don’t think it has to be an either/or. If there are distributors on the line, you need to just b keenly aware of this perception shared by many manufacturers that their distributors are not providing as much value as they once did as it relates to customer engagement, marketing, sales and so on. It’s important that you communicate all your activities clearly and demonstrate a level of accountability back to the companies that you represent. Distributors will need to be more proactive in order to remain relevant in many sectors.

Joe: you speak to the impact of technology and how its disrupted every element of our personal lives, but especially in the customer relationship arena. How my business, my salespeople connect with my customers, and the people on those ends. The blurring of human and digital. We saw that both high and low-growth organizations are investing heavily in digital marketing and ecommerce. Trying to find that balance to be there ready when that customer emerges into that environment, they’re able to play in that. There’s no question that technology is disrupting all parts of our world. But specific to the customer relationship, that really is a powerful change.

Anne: I also heard that customers are informed online. I like the quote you said, Marc, “We don’t win business online.” Just because ecommerce might not be relevant for a small manufacturer, making sure the small businesses are represented so people can actually self-serve, find out the information they want to know so they can start that relationship is pretty critical. There’s all levels on the spectrum of education and leveraging technology, which really leads us to the third point. Operations and some of the key decisions, we saw the top investment is specifically technology. Joe, can you explain how technology is leading the list in terms of investments for the year?

Joe: as part of our survey process, we asked our members inside the operations category, what are the biggest challenges you face as it relates to operations? It’s technology, infrastructure, productivity, etc. but its technology that is the biggest challenge. And yet when we look at the top areas of investments in operations, those are in technology. Clearly, we need to add equipment and facilities as our business grows, but this technology infrastructure- it’s the information infrastructure, it’s the hardware, it’s the network, it’s the security that routes around the network. But most importantly its the business applications that sit on that technology that allow the sharing of information and the increased productivity of all our folks. When we asked a follow-up question, going one more level deeper, we said, which business applications do you expect to spend or invest on in 2018?” We’re separating out hardware and maintenance. All the things that go on behind the scenes that, frankly, no one is seeing. What are the business applications you’re going to invest in? And consistently, with what Marc had said, CRM, managing and engaging the customer, using technology to keep up with that evolving relationship with customers came to the top of the list. We looked down at the bottom at human capital management at 19%, where as critical as talent is, maybe technology is not as big a driver and influence as what you would see with your customers or with the ERP and your backend system. It begins to set up this discussion around technology and how technology is really driving this change. Marc, talk about these technology value drivers please.

Marc: First, an important caveat. I don’t consider myself a technologist per se, but I would say I have a unique vantage point on how Vistage members are leveraging technology. So I think you need to make a distinction between technology companies and technology-enabled companies. Most Vistage members would consider themselves to be the latter. The sea change we’re seeing right now in terms of technology investment is that for many years, members have been focused on things like reducing cost and doing things faster, cheaper and better. In the future the focal point will have to be on creating solutions that are more outwardly-facing and directly impact the customer experience. There’s a couple of questions Vistage members really need to ask themselves. The first one is, how will they survive a world driven by algorithms? I don’t think anyone is immune. If you think about your traditional B2B businesses such as maybe warehouse, robotics, fulfillment or things emerging like cashless checkout or web services, it’s likely that the largest provider in all of those B2B categories in five years is going to be Amazon. A decade ago, the most valuable companies in the U.S. were Exxon and GE and Citigroup and Walmart. And now the most valuable companies are Apple, Google, Amazon and Facebook. So the technologists are winning, and we need to be thinking about, where will they go from here? In particular, you referenced a talent war earlier– another war that’s going on is to have the best data. Whoever has the best data is probably going to win. That implies that we need to have a level of integration where you have access to business intelligence and reporting you can share back to your clients, so your reporting really needs to be best-in-breed. That can be a big differentiator. To that end, there are a lot of frustrated Vistage members because they can’t find software developers that are capable of creating industry-specific solutions that serve them. But a lot of these emerging web-enabled office suites are very powerful and there will be more options to configure them to your liking in the near future.

The other question we all need to ask is, how will technology be a competitive advantage for your company? Because if technology is not a competitive advantage it will very quickly become a disadvantage. My advice to you is if you do not have people on your management team who can advise on emerging technology, then go outside and find advisors who can.

Joe: What we’ve seen in many of the spaces is fractional expertise. Be that a fractional CFO, and we’re seeing that in cybersecurity. We don’t need a full-time cyber person, but you want to be able to stay on the edge. Do you see that evolving in tech as well?

Marc: For a lot of Vistage members, if you have 20 employees, it’s very possible that the person who is managing your technology is either fractional or, no offense, they used to fix the copiers. That’s not adequate today. You need that person, whether it be an external advisor, a board member or whatever, who can help advise you on how technology can create a better experience for your customers.

Anne: Before we get to Marc’s top 10 trends for small and mid-sized businesses, I just want to recap some things we’ve heard as we were having the conversation. In the area of talent I hear that recruiting is 24/7, it’s not just when someone leaves, replacing that, but constantly having the leadership pipeline. And culture is more critical than wages. That’s a key takeaway for talent. And when we look at customers, really, thinking about meeting customers where they are and that’s online. And how much can that experience really connect the people who are online with your salespeople, and what kind of customer experience can you offer online as well? and lastly, in the area of technology and operations, one thing is interesting is that you don’t need to develop from scratch or find someone that can do something for you. Marc you mentioned there’s some technology that is pretty powerful and can be configured as opposed to something dissolved from scratched. So those are some key takeaways that I heard from the conversation so far. So now we want to go to looking ahead at yoke top 10 trends, Marc, for what SMBs should be considering. We understand this is from your experience and your monitoring of key trends, and your conversations with some of our members.

Marc: First of all, I think in the business press, we have CVS acquiring Aetna, so a pharmacy retailer buying an insurance company. A Walmart buying Humana, same thing. AT&T acquiring Time Warner, so this is a dish provider buying a cable/content provider. So after a decade of industry rollups, large companies are running out of options in terms of who they’re going to acquire. Instead of horizontal acquisitions they’re focused on vertical integration. These deals are going to reshuffle the deck in a lot of industries. Every member needs to evaluate their value chain and if you’re unfamiliar with that term, we have a white paper on our website about that which is www.optimizeinc.net. Vistage members need to constantly reevaluate their business model in the face of these dynamic industry shifts and kind of understand what’s happening in the value chain, before and after the service they provide. Again as I mentioned, heading toward a destination of more end-to-end solutions and being something closer to a platform company like many of the technology companies are.