Friday, March 7, 2014

Book Review- Good To Great

So I just finished reading Jim Collins’ widely revered book about business, Good To Great (which I will hereby refer to as G2 in the name of succinctness) and I must say it is worthy of all praise. This book for me was about a six month journey to get through, not for any one reason, but a combination of hitting a slow spot, reading other books and just general ADD-type behavior, making this a drawn-out endeavor. Now, that doesn't mean it was a boring book, I just happen to have the mind of an otter.

One of the stand-out features of this book is Collins’ dedication to research and empirical evidence. It is one thing to write a book based on your own experiences or hearsay, but it is an entirely different feel when you can go to the appendices and see where every piece of information came from.  As you can see below, the appendices make up a significant portion of the total content, which should be clue #1 that you will get your money’s worth with this book.

The companies that were finally featured in G2 were narrowed down to 11. Collins and his CU Boulder research team of grad students used somewhat simple, but ingenious methods to identify these “Good To Great” companies. The master list of companies they started with were US publicly traded companies. Publicly traded companies have a “widely agreed upon definition of results” and a “plethora of easily accessible data.” Private companies are under no obligation to disclose their financial results (as they shouldn't) so Collins used companies you could buy stock in yourself. The selection process of the companies was the 15 year period between 1985 and 2000. Collins says “Many companies show a sharp rise for five or ten years with a hit product or charismatic leader, but few companies manage to achieve fifteen years.” Additionally, these companies showed average or below-average results prior to their transition point, as to level the playing field and provide a more apples-to-apples comparison. The transition point was in 1985, where the 11 companies beat the general market (still trying to figure out if the general market means all common stocks available, S&P 500, or Dow 30) by at least 3x for a fifteen year period. Not only did the company have to show great results, it had to do so of its own accord, not just because that particular industry was doing well (think tech companies in the 90s; they all did well because the industry was hot business at the time.) Collins and the research time also provided a list of “comparison companies” to each of the 11, who were in the same industry, had the same resources, but never quite made the leap from good to great. The companies are:
Good to Great
Circuit City
Fannie Mae
Great Western
Scott Paper
Bethlehem Steel
Phillip Morris
R.J. Reynolds
Pitney Bowes
Wells Fargo
Bank of America

It is interesting to note that some of the good to great companies are no longer in existence today. For me, Circuit City is the most notable as it was a store I used to remember going to on the weekends with my dad, and just dreaming about buying all their computer games. This doesn’t take away from what the company did under the period studied despite their current condition.

G2 is divided into 8 sections, the first one called “Level 5 Leadership.” A Level 5 Executive “Builds enduring greatness through a paradoxical blend of personal humility and professional will.” One notable quote from this section is from Darwin E. Smith, a CEO for Kimberly-Clark. He says, “I never stopped trying to become qualified for the job.”

The next section is called “First Who…Then What.” The main takeaways are that you need to get the right people on the bus before you start driving it, and a great company can only grow as fast as it can attract the right people for the company. Wells Fargo had fewer layoffs than Bank of America during the comparison years, and a greater percentage of management lost their job than the people on the bottom when there were layoffs.

Third, we have the section called “Confront The Brutal Facts.” In this section we learn that a great company is one who asks questions and gives people an opportunity to be heard.

Moving on, we come to the section titled “Hedgehog Concept.” The gist of this section is making sure your organization passes this three-part litmus test: What can you make money at, what do you want to be the best at, and what can you be the best at?

Section five is called “A Culture Of Discipline.” Collins writes this section not so much to speak on disciplining individuals, as he does on the organization itself. Playing off the “Hedgehog Concept,” we learn about failed acquisitions that had little or nothing to do with the business or core competency (R.J. Reynolds buying a company that makes shipping containers and an oil company.) This is a violation of the part of the hedgehog concept “what can you be the best at.”

Next we get into a section about technology called “Technology Accelerators.” “The good to great companies used technology as an accelerator of momentum, not a creator of it.” Instead of creating a mediocre website during the initial phase of the dot com boom, Walgreens kicked back like a boss and deliberated instead of heading head first into the internet world. What came out the other side was an inventory and distribution system, and a way to fill your prescription online, and then either pick it up or have it shipped to you. Their online competitor at the time was, who ended up getting acquired by Walgreens in 2011.

The seventh and last section I will talk about (because the eighth section is a dovetail from one of Collins’ books I haven’t read) is called “The Flywheel And The Doom Loop.” The big question that this section asks is what ignites the change of a company from good to great? Is it some big program launched internally?

 (Image courtesy of

Turns out, a lot of the insiders in the companies that turned from good to great had no idea any major breakthrough was happening until it happened. The companies did not have to have big program launch events to motivate the employees because the companies already had the right employees to begin with who were already motivated! George Cain, the CEO of Abbott Laboratories during the good to great period, said, “It wasn’t a blinding flash or sudden revelation from above.” “Our change was a major change, and yet in many respects simply a series of incremental changes- this is what made that change successful.”

G2 is suitable for anyone, from an entrepreneur to a CEO of a Fortune 500 company. It turns out, a lot of the business lessons in this book can be applied to life. For example, getting the right people on the bus (your friends circle) or getting the wrong people off the bus can be very important to surround yourself with people of the same cloth, who have similar goals and aspirations, and will hold you accountable to those. The presence of empirical evidence makes it hard for any reader to debate the facts laid out in this book, which leads me to believe that this book itself is not good, but great.  


Collins, Jim. Good To Great. New York: HarperCollins, 2001. N. pag. Print

Tuesday, March 4, 2014

LLC is as easy as 1,2,3,........4

If you are a nerd of the business world, then the history of the Limited Liability Company (LLC) is quite interesting. The first occurrence of this business entity worldwide was seen in Germany in 1892, back when Germany was under the rule of its last emperor, Kaiser Wilhelm II. Interestingly enough, the first time we see a US LLC pop up was in 1977, in Wyoming of all places!?!?  Wyoming wanted to stimulate growth in its economy, so it created the LLC specifically for a Texas oil company. And the rest is history….

But screw Wyoming, let’s talk about Colorado. Many of the specifics of the LLC are shared by multiple states but there are intricacies and fine print stuff that set Colorado apart from other states. The rules of LLCs are governed by states, not the federal government, just FYI. In Colorado, the Secretary of State (SOS) administers and oversees LLCs. They are the department that you will file all paperwork to initially and through the life of the business. (And I just found out filing the paperwork is literally all they will do. If you have questions about the Colorado Revised Statutes regarding LLCs, you will have to talk to a lawyer as the people answering the phones are basically robots with no souls.)

Oops, I said it, that dreaded paperwork word that usually paralyzes most people, and keeps lawyers driving Ferraris. But after reading this post, you will no longer feel daunted by the process of protecting and legitimizing your business as an LLC. Let’s get started…

Investopedia defines an LLC as “essentially a hybrid entity that combines the characteristics of a corporation and a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of a LLC is a feature of partnerships.” I have identified four main steps you need to take to create an LLC, and then there is a small fifth step you need to take annually to keep the company going.

The first step is pretty intuitive; you need to have a name. In your name you must contain the words or abbreviations LLC, ““ltd. liability company,” “limited liability co.,” “ltd. liability co.,” “limited,” “l.l.c.,” “llc” or “ltd.,”Limited Liability Company," "Limited Company," or the abbreviation "L.L.C.," "L.C.," "LLC," or "LC." The word "Limited" may be abbreviated as "Ltd.," and "Company" may be abbreviated as "Co."” So there’s that. Your name must be distinguishable from other businesses on file. In Fort Collins I remember there was a whole debacle about a business that currently is in operations called The Buttercream Cupcakery who was suing another business for a very similar name. Also, there is a jeweler called Pandora, which would be interesting to see if the music streaming service had any beef with. For $25, you can reserve a name with the SOS for 120 days if it is available and you are not ready to file your articles of organization.

Moving on, the second step is to file your articles of organization with the SOS. Your articles of organization will include the name and address of the principle business. It will also include the name(s) and address(es) of those involved in forming the LLC, and whether it will be run by a manager or members. Lastly, you must give the name and address of your registered agent. A registered agent is a place where the state can deliver notice of lawsuits or other legal matters should the need arise. In Colorado, your registered agent can be you and you can put your house or your place of business as the address. However, I have read that it can be advisable to not go that route and instead pay a registered agent company to handle that stuff for you. The reasons are that registered agents are public info, so do you want your home address on the SOS database? Additionally, if you operate a retail environment, do you want your employees and customers see you get served a lawsuit? Some things to ponder….

The next step is to create an operating agreement. This is the most paramount part of forming an LLC as it can make or break you throughout the life of your business. In Colorado, an operating agreement is not mandatory, nor do you have to file it with the SOS. In some states, you do. Colorado and many other states have default operating agreements the courts and arbitrators will use if you do not have one. That’s great and all, but it may not be what you want and you could be legally bound to it. For examples, the state default is that profits and losses will be divided up by the number of members. If not all members worked the same amount or invested the same then that is total BS.  It is advisable to hire a lawyer or accountant with this part. This is because the operating agreement protects your liability an LLC. A court may rule that you as a single member or multi-member LLC are not operating as an LLC if you do not have all the aspects of an LLC, and you may lose your personal liability protection and be classified as a sole proprietor or a general partnership, respectively.  Here are some commonly defined terms that make up an operating agreement, although you can customize yours to say exactly what you want:
·         % interests
·         Rights and duties
·         Voting
·         Allocation of profits and losses
·         Management
·         Holding meetings
·         Buy-sell provisions

The final step in creating an LLC is to learn about your tax requirements. If you are a single member LLC, your Social Security Number will be enough to identify you to the IRS. If you are a multi-member LLC, you will need to get an Employer Identification Number (EIN) with the IRS. No filing fee for the EIN. Yay!!!!! When it comes to be tax time, as a single member LLC, you will go ahead and report your business incomes and expenses on a Schedule C form which is pretty simple honestly. If in a multi-member LLC, you will file one IRS Form 1065, and then distribute a Schedule K-1 to all members which shows their share of the profits or losses to be used on their own tax return. 

And that my friends, is how you create an LLC! The fifth step is very simple. Every year, you update the name and address of your business, as well as your registered agent. That’s it. You don’t have to have annual meetings and take minutes or any of that corporate BS. But make sure you do file the annual requirements because you want to keep that liability protection!!! This is meant as a guide, please don’t take it as gospel. I have neither a JD nor a CPA, I just happen to know a thing or two about this stuff.