by Hap Klopp
What Royal did was take the time to measure more than just the goal, the peak. He measured an obstacle, the weather, and then thought his way around it.
He didn’t just measure profit. He measured all the things that stood in the way of profit, and all the things that helped him get profit. And although his problem didn’t deal with humanity—it dealt with a living organism, the weather—he understood it. He could feel it, smell it, taste it, almost absorb it. He was in tune, and he knew what was happening—although he also knew that the weather, like anything with energy and a will, could change in an instant.
It is the same in business. Profit is one measurement, but so much goes into that one measurement. There is the energy level of the employees, satisfaction of customers, and creativity. Can these be measured? I say yes. Measured in terms of humanity.
An open mind can measure anything. You may not be able to quantify it, but you can measure it. Often it is an instinctual measurement—a singular, honest answer to your own questions. Are my employees giving me all they have? Do they have a reason to put forth such effort? Am I delivering the best possible product to my customers? Are we creative, or do we spurn creativity?
There is another point to be made here about quantifying these things. Profit itself is never accurately quantified. At least not in the short term—which is another reason to move beyond a quarter-to-quarter mentality. Profit can always be toyed with by a creative bookkeeper. You can set up or reduce reserves. You can come up with another acquisition and write things off under restructuring costs. You can roll profit over into another accounting period, choose different depreciation rates, and defer or accelerate payments or shipments. You can do so many things, legally, to alter short-term profit that it is really nothing more than a blood pressure test for the business.
Sure, profit means something. It is a guide, a barometer, but not a complete diagnostic measurement. Profit is not a bad measure; it is simply insufficient. It must be examined in conjunction with other factors. The thing about a measurement is that such a figure is not grounded without more information. It is merely a number up in the air. To say profit was $20 million means nothing. Profit on what, IBM or Joe’s Hot Dog Stand?
There is an equation that goes into success, and you can reach the right answer in more than one way. Of course, the same is true for reaching the wrong answer. But one thing is constant. The most important part of the equation is humanity.
What most leaders do not understand is that profits are not just for the people at the top of the company. In many companies there are bonuses and stock options for a wide range of employees. People’s whole lives are riding on the success of the company. Not just a few bucks—lives!
Let me give you an example of a factor that leads to profits that is both quantifiable and instinctual: energy level/satisfaction of employees. The easiest measure of this is employee turnover. Zero turnover is bad—it indicates complacency and acceptance of the status quo. High turnover is also bad. It is a sign of disgruntled employees. Turnover should not be a short-term measurement. It should be continuously monitored for trends, and corrective action should be taken when problems arise.
For a long time Sharper Image was considered a great business because of its rapid growth and profitability. But insiders knew better. They were measuring something else—employee satisfaction. What they saw, quite simply, was a turnover in excess of 100 percent a year. That’s right, in excess of 100 percent. In other words, someone would quit, someone else would be hired, and then that person would quit all in the same year. More than 100 percent—incredible. People obviously found working for the company quite difficult. The owner was driving, demanding, intimidating, and never gave employees credit for their efforts. Suppliers were squeezed for advertising dollars. If they didn’t spend more, the product was dropped. Quality was not as important as profits. The owner apparently would listen to no one, and employees couldn’t leave fast enough. The owner didn’t care—he was measuring profits.
In 1991, Sharper Image announced major financial and sales problems. The company said it must revamp its product focus and the internal workings of the company. Their latest plan is an environmental focus—claiming that as a company they want to get more in harmony with the world. Perhaps, but it might be better to concentrate on employee satisfaction because they’re the ones who will make the sales increase.
One unquantifiable measure of employee satisfaction is employee comraderie—whether people care about one another and their jobs. It is tough to measure, but you can see it. If workers get together spontaneously, it is a good sign. They like one another. If get-togethers are farther and farther apart, a problem is brewing.
At a good company, birthdays are celebrated in some fashion. In a small company the entire company can celebrate. As a company grows, divisions can celebrate birthdays. The important thing is the human touch—such celebrations should be encouraged, even if the entire company cannot attend. In addition the anniversary of the company should be celebrated, as should new facilities or major achievements. At The North Face we always celebrated the company’s anniversary. If these opportunities are ignored, the team is drifting apart.
Creativity is also something both measurable and abstract. Creativity is not something that should just be delegated to the design department. The warehouse workers at Brunswick proved that. Probably the easiest way to measure creativity is by examining the output of the design department—new products. Executives at 3M have told me that 80 percent of that company’s products were created in the previous three years. Innovation is a constant goal for the company. Concepts such as quality and innovation cannot, however, be measured in just one department. They must be measured throughout the entire company.
An easy way to measure the output of the design department is to keep a running log of the research-and-development budget and compare it to profits for new products. If you keep these statistics for a three-year period, charting them on a graph makes it simple to spot trends. This may require a shift in your accounting to Activity-Based Accounting, but it will be worth it. In most businesses, R&D investments should show a return within that three years. However, in some businesses, such as the drug industry, the wait is much longer—for example the seven-year waiting period necessary for a new drug to be approved by the Food and Drug Administration. The parameters for a drug company are much different than for most other companies. You need to analyze and agree on the appropriate measures for your firm.
But creativity, of course, is more than R&D—it is a response to a company policy of listening, caring. No matter what the title of the employee—from janitor to senior researcher—each employee knows some aspects of the company better than top management.
One of the employees in 3M’s adhesives division was also a singer in his church choir. He could never get the pieces of paper he marked hymns with to stay in his hymn book. They kept falling out. He suggested to 3M that a piece of paper with a light adhesive might be attractive to a few people. As it turned out, Post-Its were quite attractive to a lot of people.
Although you cannot quantify that type of creativity within a company, you can gauge it. Are employees coming to you with new ideas, even bad ones? Or have they been beaten down to the point that they no longer care? Are they drowning in embalming fluid, or are they flourishing in freedom?
There are, of course, other, more practical ways to measure success. Service is one easy way—turnaround time of orders in house. L. L. Bean, the mail-order house in Maine, does this. The company constantly measures not only its own turnaround time but also that of its competitors. Compensation and promotion within L. L. Bean are based in large part on service and turnaround time, and there is hell to pay if they start to slip.
What I am proposing is an expanded definition of success; something that incorporates a multitude of parameters into an always-fluid image of the company. This image is not only in the executive’s mind. It is also, and more importantly, in t
he minds of the employees. It will include things I’ve talked about and things each individual dreams up. A good company can stand up to all fair standards. Perhaps the best standard is quality, which I will address in Chapter 9.
There are many little measurements that when plugged into the equation can lead to your analysis on the relative health and happiness of your company. One concrete measurement is market share. Japanese companies frequently approach the world with dominant market share as their goal. One such company is YKK, a zipper manufacturer. In the late 1960s YKK came to the United States with one goal—dominant market share. By 1970 they had only a negligible share of the market. They didn’t panic—they remained focused on the long-term goal. Today YKK is the top company in the U.S. zipper market. They were flexible on pricing, hiring, and even location of their facilities. Instead of locating in a major, high-cost manufacturing center they went to Macon, Georgia. This allowed YKK to pump more money into customer service—they set up 20 service centers across the United States. It did not surprise me when I read in Forbes that the Yoshida family, which owns YKK, is one of the wealthiest families in the world.
Jack Akers, chairman of IBM, raised a major flap about market share in the spring of 1991: “The fact that we’re losing market share makes me goddamn mad…. The tension level is not high enough; the business is in crisis.” Those words appeared on the cover—yes, the cover—of BusinessWeek magazine.
In IBM’s case, it seems, there is more to the problem than market share. Market share, like most things easy to measure, is a symptom. If market share is good, then the company is healthy. But if market share is bad or getting worse, you need to look for the disease. That can be deeply rooted and a bit harder to diagnose than simply health.
Another measure is Speed To Market. Entire businesses have been built on the premise of faster speed to market. Federal Express is an obvious one—proving time to be the commodity. Another is McDonald’s. A classic is Revlon. Charles Revlon said, “To hell with R&D.” His idea was to monitor the competitor’s regional test-market ideas and then copy the good ones, reaching the entire market before the originator. Even though Revlon didn’t invent many of its products, it often dominated the competition because it was faster at getting the products to market.
The Limited retail stores also have recognized the importance of Speed To Market. That company owns a fleet of private jets for the express purpose of flying new products from the Far East while the fashion is still hot. Their competitors rely on commercial shipping lines and lag.
Two more speed-to-market stores: Pillsbury and Ford. In 1988 Grand Metropolitan PLC acquired Pillsbury and sent in a small guerrilla team headed by Ian Martin to speed up Pillsbury. Martin is a no-nonsense Scotsman. He did away with the lethargic culture in the company. He eliminated layers of bureaucracy and reduced the product line. More important, he shortened the product incubation schedule by years. Profits went way up. Coincidentally Ford did the same thing after falling into deep trouble in the mid-1980s. But when profits returned in the late 1980s, Ford fell back into its old lethargic ways—celebrating once again the committee. Rather than continue to try to improve, Ford stayed the same while its more aggressive foreign competition was always improving. In crisis, Ford focused. In success, it formed committees.
This is an example of a false summit, something very familiar to a mountaineer. Imagine being on a mountain. The struggle of the climb, the effort, the pain. All along you see what you think is the peak. You figure you have just enough energy to make it and when you do, man, it sure will feel great. Well, what often happens is when you reach the “peak” you realize it is only a step on the way to the real peak, which you see farther away. It is then that the mountaineer must really dig deep. A false summit can be tremendously demoralizing.
In business, reaching a goal can be like a false summit. Although the goal is real, it is important to immediately begin looking beyond the goal. A leader cannot steal away the joy employees feel for having reached the peak. But the leader also cannot let the energy level dissipate. It is very easy for everyone to fall into a sort of postpartum depression. In climbing, I have met very few climbers who do not describe a tremendously depressed feeling coming down from a successful climb. It is the feeling of “Is that all there is?”
At least in business, that is not all there is—goals continually evolve. To dig below the bottom line is to continually reach higher. Certainly it is important to set attainable goals so that business does not become a never-ending struggle to achieve the impossible. However, setting new goals is the only way to keep a company vibrant. In mountaineering being at the peak is only a small part of the joy. It is the actual struggle to get there that makes it fun.
Measuring success is not simple. Factoring in all the aspects of a company is the only true way to know its soul. After all, profits are temporal, but a soul—if it is strong—can live virtually forever.
And the bond that holds the soul of a company together is the people who work for it. Once the measuring is done, it must be constantly fed back to the employees so that they know where they stand and what to expect. I saw one of my clients try this and fail because he used so much business jargon and babble that he lost everyone in the linguistics. Business communication isn’t some scientific formula—it is the same as any other communication. People must understand.
It’s really that simple. When you read the numbers right, the thing you see is that every one of them represents a person or some people. They may work for you or for your competitor, be a supplier or be a customer. But they are there. Every number has a face.
3
FINDING THE SPARK:
Where Logic Meets Religion
The North Face was founded on what I call “the Scotch Principle.” In Berkeley, 1968, scotch was not the usual principle, if you know what I mean. A group of us were sitting around having a 60s discussion about what turned out to be a very 80s discipline: making money. We were talking of what would become of us. “Imagine”—one person laughed— “where you’ll be in ten years.”
“Hap Klopp, more than thirty years old. That’s a scary thought,” said another.
But it wasn’t. Not at all, and the scotch bottle started making the rounds. “What the hell,” someone offered after emptying his glass again. “Let’s start a business.”
“A business?” Another laughed. “What do we know? All we know is sports, outdoors, and having fun.”
Not long afterward I bought three stores with a great image but severe financial problems that were called The North Face. I closed two of them and set out to design, produce, and market outdoor gear for the best adventures in the world.
Scotch. A bottle of scotch in 1968 in Berkeley, California, and my world changed completely. I am still in awe of how my company was dreamed up—except when I analyze it. On first glance, it seems against the American ethic to come up with a good idea in an intoxicated state. Just say no, right?
Well, I said yes. I am not here to advocate drunkenness, but rather to talk about leadership, personal freedom, and creativity. It always amazes me when I think of America as a place where I can go to a store and buy a machine gun, but I cannot legally buy one marijuana cigarette. I bet more good ideas have arisen in people after smoking a joint than anyone has ever had from shooting a hundred rounds a minute at a deer.
Nevertheless, there are many means to an end, and if yours happens to be squeezing the trigger of an AK-47, I say more power to you—as long as you don’t harm anyone. Despite my disagreement with your means, I still believe you are among the lucky ones. If you have found a way to tap into yourself, your wants and your dreams, you should hold on to that with everything you have. Life is short, after all.
The world is changing at an ever-increasing pace. As a result, every day, every hour, sometimes every minute you need another new idea. Obviously you can’t be wasted or shooting a machine gun all that time and be coming up with those ideas. Really, you can’t even pr
etend to be anything but a jerk. Still, you’ve got to loosen up enough to listen to yourself because the real you holds the key to everything. You have to trust your instincts and then learn on an instant, personal basis. You must be free within yourself. To be aware of this skill and to tap into it at will can be an incredibly strong feeling—even a religious experience.
Nothing happens without a vision—the mental sweat of a single human spark. Get it where you will, but get it! Live to the fullest, trust yourself, and be honest. Don’t settle for anything.
I remember reading an interview with a rock star. I don’t remember the name of the performer, but I can picture the words as I can picture the faces of my children. He was talking about his struggles to make it and the “advice” he’d received from both friends and family. The guitar is great, they’d told him, but why don’t you take up something else? Like welding or carpentry. Go to college—something. Just in case, they’d said. You know, so you have something to fall back on.
His response was simple. “If you have something to fall back on, you will fall back.”
And so there is a spark. The world explodes like an orgasm hanging from a dream, and there is life—a compendium of opportunity from the seeds of an idea. This spark is where an active imagination meets hard work—where religion meets logic, and where God lives in all of us. I am not religious in a Jimmy-Swaggart-organized way, but I am religious in the sense that I cannot look at the ocean or mountains without thinking of God’s majesty. And “spiritual” is the best word I can find to describe the spark. It is an inner dance of freedom that first admits and then proclaims, “I am this.”
Generally vision comes from an inner need: emotional, psychological, or financial.
One spark. The Kockleman brothers have that spark, and what a spark it is. They are the incredible bungee brothers—real-life siblings who lead real-life bungee-cord adventures for profit. Bungee-cord jumping is the sport where you jump off a bridge with an elastic cord tied to both the bridge and your legs. The idea is to free-fall until almost hitting bottom and then be snatched from the jaws of death by the cord, which stretches but does not break.
