Most Mission Statements are Worthless

"Most corporate mission statements are worthless. They consist largely of pious platitudes...A mission statement should not commit a firm to what it must do to survive but to what it chooses to do in order to thrive. Nor should it be filled with operationally meaningless superlatives such as biggest, best, optimum, and maximum...

"To test for the appropriateness of an assertion in a mission statement, determine whether it can be disagreed with reasonably. If not, it should be excluded. Can you imagine any company disagreeing with the objective "to provide the best value for the money." If you can't, it's not worth saying.

"What characteristics should a mission statement have? First it should contain a formulation of the firm's objectives that enables progress toward them to be measured....Second, a company's mission statement should differentiate it from other companies...Third, a mission statement should define the business that the company wants to be in, not necessarily is in. However diverse its current business, it should try to find a unifying concept that enlarges its view of itself and brings it into focus...

Fourth, a mission statement should be relevant to all the firm's stakeholders. These include its customers, suppliers, the public, shareholders, and employees. The mission should state how the company intends to serve each of them...Finally, and of greatest importance, a mission statement should be exciting and inspiring. It should motivate all those whose participation in its pursuit is sought...

"If your firm has a mission statement, test it against these five criteria. If it fails to meet any of them, it should be redone.

Read more in this paper by Russel Ackoff. You may also wish to check out these related posts.


How to Solve Intractable Problems

I highly recommend this profound presentation by the late Dr. Russell L. Ackoff, the dean of the systems thinking community. In it, Dr. Ackoff dicusses the history, nature and application of systems thinking. A few of his observations will give you an idea of the force of the presentation:

-The properties of a system (e.g. a business organization, an automobile or the human body) depend on the way in which the parts of the system interact.

-When a system is taken apart, it loses all of its essential properties and so do each of its parts (e.g. Take the motor out of an auto and what's left is not an auto. Moreover, the motor no longer moves anything. It just sits there.)

-A system is not the sum of its parts. It is the product of the interactions of its parts.

-The performance of a system is not ordinarily improved by improving the performance of its parts individually (e.g. "fixing" the marketing department may not improve the performance of the business organization).

-To "dissolve" or eliminate a problem (as opposed to absolving, resolving or solving it), ideally redesign the system of which the problem is a part to eliminate the problem, and then see how close you can come to realizing the ideal redesign.

-The strength of the U.S. economic system is its tremendous ability to survive its inefficiencies.

-The U.S. educational system kills creativity.

-The righter you do the wrong things, the wronger you become. Better to do the right things wrong, than the wrong things better.

Dr. Ackoff cites specific instances where systems thinking was used to dissolve seemingly intractable problems. To eliminate an illiteracy problem in an inner city grade school, for example, a team of which Dr. Ackoff was a member, used a grant to set up a continuous showing of Charlie Chaplin silent films that students could watch at any time. Soon the illiteracy problem dissolved, as students became motivated to learn to read so that they could understand the subtitles.

Identify Critical Success Factors

"Critical Success Factors are the areas of your business or project that are absolutely essential to its success. By identifying and communicating these CSFs, you can help ensure your business or project is well-focused and avoid wasting effort and resources on less important areas. By making CSFs explicit, and communicating them with everyone involved, you can help keep the business and project on track towards common aims and goals...

"Identifying your CSFs is a very iterative process. Your mission, strategic goals and CSFs are intrinsically linked and each will be refined as you develop them. Here are the summary steps that, used iteratively, will help you identify the CSFs for your business or project:

Step One: Establish your business's or project's mission and strategic goals...

Step Two: For each strategic goal, ask yourself "what area of business or project activity is essential to achieve this goal?" The answers to the question are your candidate CSFs.

Step Three: Evaluate the list of candidate CSFs to find the absolute essential elements for achieving success - these are your Criticial Success Factors. As you identify and evaluate candidate CSFs, you may uncover some new strategic objectives or more detailed objectives. So you may need to define your mission, objectives and CSFs iteratively.

Step Four: Identify how you will monitor and measure each of the CSFs.

Step Five: Communicate your CSFs along with the other important elements of your business or project's strategy.

Step Six: Keep monitoring and reevaluating your CSFs to ensure you keep moving towards your aims. Indeed, whilst CSFs are sometimes less tangible than measurable goals, it is useful to identify as specifically as possible how you can measure or monitor each one...

"Tip: How Many CSFs?
To make sure you consider all types of possible CSFs, you can use Rockart's CSF types as a checklist.

Industry - these factors result from specific industry characteristics. These are the things that the organization must do to remain competitive.

Environmental - these factors result from macro-environmental influences on an organization. Things like the business climate, the economy, competitors, and technological advancements are included in this category.

Strategic - these factors result from the specific competitive strategy chosen by the organization. The way in which the company chooses to position themselves, market themselves, whether they are high volume low cost or low volume high cost producers, etc.

Temporal - these factors result from the organization's internal forces. Specific barriers, challenges, directions, and influences will determine these CSFs."

Read more in this article from MindTools.com, from which the foregoing was quoted


No Decision is Perfect

"People usually make decisions in one of two ways: They analyze the pros and cons, or they go with their gut instincts. In psychology and business journals, writers who you'd think have better things to do use up gallons of ink arguing about which approach is better. [Gary] Klein recommends a combination of these methods, in this order:

"Get in touch with your gut first. Once you start listing pros and cons, your rational mind will drown out your intuition. Klein defines intuition as the accumulation of experience converted to flash-fast thinking...

"To uncover your intuitive point of view, you can even flip a coin—not to make the decision for you, but so you can register your gut reaction to the result. How do you feel when one option drops out? If you're disappointed, ask yourself why.

"Open up the options and visualize each one...Without overdoing it, brainstorm a lot of options. Think creatively about combining the best pieces of each one by compromising or going whole hog: You could buy both the red and the black sweater.

"Banish vague fears, such as 'It may be a mistake,' and instead try to see yourself in a specific scenario. Ask yourself concrete questions about the possible outcome: What's the worst that could happen? What would I do then? Could I live with that? "It's more important to visualize how each option would turn out," says Klein...

"Let go of the idea of the perfect answer. You cannot possibly get all the info, nor can you foretell the future and calculate all the risks. Chill out. 'The harder a decision is to make, the closer the outcomes are to each other, and the less it matters,' says Klein...There is never a guarantee that you're making the right decision. Just accept that."

"Trust yourself. Improve your intuition by examining your decisions after you've made them. Look at whether you would do it the same way again."

Read more in Reinvention StrategiesL: Follow Your Gut

Strategic Decision Making Traps

"There are a series of traps that people fall into [in making decisions], that lead to incorrect judgements being reached, whatever the quality of the preceding analysis. The incidence of this is high. The cost, given that these are strategic decisions, is commensurately large...

"Pragmatism leads to at least two biases that impact strategic decision making.

1. Fact-based bias... we like to make decisions based on facts,[but]... To make strategic decisions, we need to be guided by a 'theory' that allows us to act before all the facts are in... a causal theory about the future - 'if we do this, then the following will happen' - lies at the heart of strategic decision making. We cannot wait for all the facts.

2. 'Cut-through' bias... The second consequence of a pragmatic mindset is that it drives people to 'cut-through' and jump to a decision, by making a call. It is the other side of the fact-based bias. We wait for the facts, get impatient and cut-through...Unless it is done with great skill, it can lead to wrong decisions.

"Following are the traps that people fall into.

Trap one - over-simplification

Trap two - embedded assumptions...Many decisions are based on embedded assumptions that are not discussed, assumptions that often turn out to be wrong.

Trap three - incomplete criteria... Many important decisions are made without an explicit, agreed set of criteria... Strategic decisions will have multiple options, to be tested against multiple criteria... multiple weightings and multiple time periods. The human brain cannot reliably cope with such levels of complexity.

In these circumstances, a formal, explicit process will yield a surer judgement...

To avoid these traps, make the decision process visible. Work hard to consider the whole problem at the same time. This provides a great incentive to expedite the process. Identify important embedded assumptions. And spend real time talking through the decision criteria, weightings and scoring. This way, the decision process will do justice to the hard work done in fact gathering and analysis. Better decisions are the expected result."

Read more in this article from CEO Forum Group

Shareholders Agreement Checklist

The Business
• what is the business?
• is it existing or a startup?
• if existing, what has each shareholder contributed so far? have they been fairly rewarded? does the existing share structure fairly reflect those contributions?
• What adjustments need to be made?
• what vision do you have for its future?
• what are the key issues related to operating and building the business?
• how or what will each shareholder contribute to the vision, operations and building?
• how is the business going to make money for the shareholders? giving them jobs? paying them profits annually? building a valuable business that can be sold at a later date?
• how long do the shareholders plan to be involved in the business operationally?
• how long to the shareholders plan to be involved in the business as shareholders?
• will the shareholders ultimately sell the business? when? to whom?
• or will they simply wind it up?
• or will they pass it on to their children or other family members?
• is there a business plan? If no, why not/when will there be one?
• What must the shareholders agreement do to support the business vision/plan set out above?

Financing the Company
How is the company going to be financed?
• What are the shareholders putting in?
• Is that to be loans or equity?
• Are the loans going to bear interest?
• Are they going to be secured?
• What are the repayment terms?
• What third party financing is going to be used?
• What if more money is needed?

Personal Commitment
• What are shareholders to contribute ways other than financing?
• Who is working in the business?
• On what basis?
• How are responsibilities being divided?
• How are shareholder salaries going to be set?
• What kind of special covenants will apply while you are a shareholder? E.g. noncompetition, company owns all inventions
• What kind of special covenants will apply after you cease being a shareholder? E.g. non-solicitation, non-competition

Decision Making
• How will decisions be made?
• Will different kinds of decisions be made in different ways?
• Consider both strategic issues (e.g. new partners, buying new businesses, selling the business) and operational (e.g. signing authorities on contracts and bank accounts, ability to make binding commitments on behalf of the company, hiring and firing, purchasing, selling, etc.).
• Who will make them?
• How will voting rights be handled?
• What will constitute a quorum of decision makers?
• Is the general rule simple majority vote? Or something else?
• Are there things you all have to agree on? I.e. that require unanimous approval?
• Of the things you all have to agree on, are their any that you would be willing to have resolved by arbitration etc. to avoid having a deadlock?
• Of the things you all have to agree on, are their some that you would be willing to resolve by some kind of super majority (e.g. 75%) to avoid a deadlock?
• Which are the things you all have to agree on or we end up in a deadlock situation?

Distributing Profits
• Who will decide when to distribute profits to shareholders and how much to distribute?
• What if they can not agree? Arbitration? Deadlock?
• Are profits distributed based on shares only, or something else too?
• What if you can not agree on splitting profits? Arbitration? Deadlock?

Resolving Deadlocks
How will deadlocks be resolved, if they arise?
• Arbitration on some issues? If yes, which ones?
• Second vote by super majority? If yes, which ones?
• Shot gun buy/sell?
• Sale of whole business with any shareholder entitled to match good faith third party offer? (Details to be worked out?)
• Winding up of company?

The Shareholders
• Share structure: have types and attributes of shares been agreed to?
• Number of shares each shareholder is to hold, class of shares they hold, amount paid or to be paid for their shares
• Are all shares fully paid for?

The Directors
• How many?
• How selected?

The Officers
• How many? What titles?
• How selected?
• Who are they? Esp. President and Secretary?

Voluntary Withdrawal
Can a shareholder withdraw from the deal if he/she wants out? If yes, how? If no, what do you do with such a shareholder? Consider: they are relocating, the deal is not going the way they planned, or they simply want to cash out?
• Others forced to buy?
• Shot gun buy/sell?
• Sale of whole business with any shareholder entitled to match good faith third party offer? (Details to be worked out?)
• Winding up of company?
• Shareholder can sell to third party, with others having right of first refusal?
• Some combination of above?
• How will the shares be valued?
• How will the purchase price be determined?
• What will be the payment terms?
• Any restrictions on going this way? E.g. can not withdraw within first two years of starting out?

Involuntary Withdrawal
What if the other shareholders want to force out a shareholder?
• Others forced to buy?
• Shot gun buy/sell?
• Sale of whole business with any shareholder entitled to match good faith third party offer?
• Winding up of company?
• Some combination of above?
• How will the shares be valued?
• How will the purchase price be determined?
• What will be the payment terms?
• Any restrictions on going this way? E.g. can not be forced out within first two years of starting out unless in default?

Other Special Considerations Re: Selling Out Etc.
• Can majority shareholders force the minority to sell to them?
• If yes, what conditions, terms, etc. See above for sample issues to be considered
• Can majority force a sale of the whole company?
• Would that include a carry along provision, whereby minority would be forced to sell on the same terms the majority is selling on?
• What about a piggyback provision, whereby the minority can force any buyer who is buying a majority interest to buy the minority interest at the same terms?

How to manage a Shareholder in Default
• What do we do if a shareholder defaults in their obligations under this agreement?
• How does it affect their profits? Their shares?
• How do we get them out of the company? What happens to their shares?
• How does this compare to the Involuntary Buyout provisions above?

How to manage the Employee Shareholder
• What happens if a shareholder of the company who is also an employee gets fired?
• Are they forced to sell? On what terms?
• What if they are not fired for a just cause?
• How does this tie in to the other buyout clauses above?

Disability of a Shareholder
• What if a shareholder becomes sick or disabled for an extended period of time?
• How long can that go on before we must question whether they can stay involved in the company?
• How will we deal with that? Their salary? Profit share? Shareholdings?

Death of a Shareholder
This is a complex area that may require input from the company accountant and a life insurance representative.

General Principles:
• Do they have to be bought out?
• Do the other shareholders buy them out, or does the company buy them out?
• How are shares valued?
• How is purchase price calculated?
• What are payment terms?
• Do we minimize tax consequences for estate of deceased shareholder?

Use of Insurance:
• Do we fund this with insurance?
• How much insurance, and how is that updated?
• Who owns the insurance?
• Who pays the premiums?
• How do the funds flow?
• Criss-cross buyout where each shareholder assumes responsibility for maintaining his own insurance with the other shareholders named as beneficiaries so they have funds to buy out the estate?
• Criss-cross buyout where company buys insurance and uses money to provide capital dividend to other shareholders to buy out the estate?
• Company buyout with company buying insurance and using funds to buyout the estate?
• Do we value the company, use insurance and then make up the difference, if any, with other funds?
• If yes, on what terms are the other funds paid?
• Do we set the price at the amount of insurance in place, irrespective of value?
• What do we do if a shareholder is not insurable?
• What if the insurance is expensive?
• How do we determine what is too expensive and therefore won’t buy the insurance?

Other Considerations
What else is important to you and that you want addressed in your agreement?

From this Discussion Checklist from Canada law firm McIntosh & Pease

An Overview of Forecasting Methods

"There are several assumptions about forecasting:

1. There is no way to state what the future will be with complete certainty. Regardless of the methods that we use there will always be an element of uncertainty until the forecast horizon has come to pass.

2. There will always be blind spots in forecasts. We cannot, for example, forecast completely new technologies for which there are no existing paradigms.

3. Providing forecasts to policy-makers will help them formulate social policy. The new social policy, in turn, will affect the future, thus changing the accuracy of the forecast.

Many scholars have proposed a variety of ways to categorize forecasting methodologies. The following classification is a modification of the schema developed by Gordon over two decades ago:

Genius forecasting - This method is based on a combination of intuition, insight, and luck...

Trend extrapolation - These methods examine trends and cycles in historical data, and then use mathematical techniques to extrapolate to the future...

Consensus methods...

Simulation methods - Simulation methods involve using analogs to model complex systems...

Cross-impact matrix method...recognizes that the occurrence of an event can, in turn, affect the likelihoods of other events...

Scenario - The scenario is a narrative forecast that describes a potential course of events...

Decision trees..."

Read more in this comprehensive and fascinating article by David S. Walonick.

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