Tough-Love Business Guru George Cloutier Issues A Wake-Up Call For Small Businesses

George Cloutier

George Cloutier is chairman and founder of American Management Services, which specializes in financial turnarounds and profit development for small and mid-sized companies. His company has worked with thousands of clients in hundreds of different industries, and Cloutier has been dubbed "The Turnaround Ace" by BusinessWeek. But he's best known for his take-no-prisoners assault on touchy-feely management styles that don't pay enough attention to holding employees accountable and the bottom line. His management advice is all about taking responsibility, with advice like "Fire every family member but yourself," "Weekends are for working, not seeing your children," "Never pay your vendors on time," "Stop playing golf and get back to work," and the especially relevant "If your business fails during the recession, it's still YOUR fault." His latest book is called Profits Aren’t Everything, They’re the Only Thing. bMighty publisher and editor-in-chief Fredric Paul spoke to Cloutier about how his philosophies pertain to IT departments and technology companies.

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Fredric Paul For bMighty: Your advice is often seen as controversial. Does it work every time, for every company?

George Cloutier: The book is intentionally controversial, but we didn't set out that way. The Book is a result of what we've seen working with 6,000 companies, ranging in size from 5-10 employees up to 400 employees or more.

If you've done 6,000 of anything, you have varying degrees of success. But most of the changes we've seen have been positive.

It depends on the thoroughness and enthusiasm of the business owner. The owner might expect it to change in 30 days. And sometimes it does. But it might take 90 days. Sometimes it hasn't worked as well as we've liked. You hate to blame someone else, but the owner has to be into it 100%.

These are not complex changes. Not like how to blow up a rocket on the moon. But it takes time.

bMighty: How do your ideas apply to tech?

Cloutier: These techniques work extremely well in Main Street businesses, and I expect them to work almost as well in technology businesses and technology departments.

Tech workers are a little more creative and a little more open to change than most workers. But they are also less structured in how they approach their jobs, they often work crazy hours, for example. So there's a constant push-pull in the IT workplace, and each owner has to decide how to deal with it.

But the key principles remain the same: Pay for performance and offer rewards for performance. Offer less rewards for negative or not-good performance.

Now, some IT workers might not like this because we're not proposing longer lunches and more nap time. It's more a nose-to-the-grindstone approach.

bMighty: How does the effectiveness of your approach vary with the economy?

Cloutier: In the recent economy, that was a party. In a boom, it's harder to attract employees, you have to offer more compensation, more frills.

Well, the party is over, the music has stopped, and there are not that many chairs left on the playing field. For employers, now is an easier time to get workers back in synch, because of the dreaded fear-factor.

But we advise employers to stay strong and not go back to their old [profligate] ways even when business improves. You'll get left high and dry when the tide goes out. If you have to loosen up, loosen up slowly and carefully.

The goal is to make more money, and stay focused on profits. Treat employees well, but don't get silly about it.

bMighty: What does treating employees well mean for you?

Cloutier: I reject the conventional wisdom -- which I think comes from HR representatives trying to keep their jobs -- about the lovey-dovey school of management. You have to manage and hold people accountable.

Give them an honest goal, pay them honestly. It's important to focus the dollars you have on performance, and pay top performers much better than mediocre performers.

It's not about love, it's about respect. If they're sick, they're sick. If they have a death in the family, they have a death in the family. But I'm not sure you need to have a beer and pizza party every Friday afternoon. You shouldn't have to tell them to come to work on time every day.

bMighty: Can you offer some tips on how small and midsize companies can "pay for performance?"

Cloutier: Say you have a company with $5 million in revenue, and you have a developer or creative worker making $80,000. How do you measure them when their project isn't due for 12 months?

First, you need to set initial goals: "Here are your goals for the 12 months, but we'll pay you more based on how well the company does on its goals during that time. The company has to do well for you to do well."

bMighty: Doesn't that mean that star performers end up carrying everyone else?

Cloutier: You could say star performers always carry everyone else. After all, 80% of sales come from 20% of the sales force. All you can do is make sure your performers are getting an honest return on their effort, and that people who don't really want to work that hard make less.

Younger workers often think of work as a social experience. Work is not primarily a social experience. Profits come first. Employees have to adjust to that reality.

You should pay something for effort, but at the end of the day, results are what counts. Maybe pay 20% on effort. Your job as owner is to focus on that and figure it out. Being a manager isn't always free and easy!

bMighty: You mentioned that fear is the great motivator, so why did we see people working so much harder during the boom years -- trying to get rich -- than during the bust -- trying to keep their jobs?

Cloutier: The prospect of making really big money is also very motivating. In many cases, the prospect of losing your job just doesn't seem real to people. It will probably take a road littered with bodies - metaphorically speaking.

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