Organizational Frugality

Organizational Frugality
November 28, 2018 admin
In Podcasts

Ray and his former CFO Robert Barker discuss the value of rational corporate frugality and how to achieve it.


Ray Zinn: Hello, everyone. It’s sure good to be with you this beautiful day here in California. With me today, I have my ex-CFO and good friend, Robert Barker, who has decided that he could like to join me in this podcast to talk about organization frugality and just how you keep your company running and fine-tuning as you would. This is a special podcast, I think, for Tough Things First, and it’s just a delight to have Robert with me this morning. Thanks for coming, Robert.

Robert Barker: Thank you, Ray. Thank you for having me. It’s always good to work with you. I’ve always said that you were the easiest boss that I ever had, and as a CFO, we need to watch spending, and that’s one of the things that can really stress out a CFO, and you would say, but when we were together, the six years that we worked together and when I was a CFO, we grew the company 10X to 200 million dollars, and during that time, we spent a lot of money, but I was always comfortable with the way we did it, and maybe you could start by just talking about your definition of organizational frugality.

Ray Zinn: Thanks, Robert. Well, there’s a funny story told about me that I would have a shoebox in my drawer and that I’d hand out the money one dollar at a time because I was considered to be so cheap, but I don’t think it’s cheap. I think it’s just being frugal. Right, Robert?

Robert Barker: Yeah, exactly.

Ray Zinn: I think that the technology industry, things get out of hand at times, and people do overspend. They want a nice, fancy office and fancy building, and they hire more people than they need because they want to look like they’re highly organized and structured, but I remember when you came on board Micrel, you were concerned. You had some doubts, and I wanted to make sure that you felt comfortable coming on as a CFO for Micrel Semiconductor. This was back in ’93, I think it was.

Robert Barker: ’94.

Ray Zinn: ’94, ’94.

Robert Barker: 1994.

Ray Zinn: I just wanted you to feel comfortable, and I told you, “Hey, everybody wants me to go public,” and I said, “Robert, you tell me. You say when we’re gonna go public. I’ll just take your lead on that,” and you liked that.

Robert Barker: I enjoyed it a lot. I came from a company that had three or four million dollars, and I was really worried about running out of cash, and when I got to Micrel, we had no cash. We were into a line of credit, and I felt very comfortable there. I felt very comfortable because everything that you did had a very methodical purpose, and one of the things that you did was you forced everybody, when you wanted to buy something, to get multiple quotes. Why did you do that?

Ray Zinn: Well, because it showed me that you did some homework, that you weren’t just a buddy/buddy with some supplier, that you actually had the requirement well thought out, and you prepared for that by studying the various alternatives because there are many alternatives to solve a problem, and so the best way to do that is to go out and get multiple quotes.

Robert Barker: The other thing that you did that I thought was very unique and that I still practice today is that any time that we came in and told you we wanted to do something or we didn’t want to do something, and it didn’t matter who it was in the company, including myself, we had to tell you the … If we had five reasons why we wanted to do it, we had to tell you five reasons why it might be a problem.

Ray Zinn: Those are the pros and cons. In other words, I always wanted a balance in the pros and cons. If there were give good reasons to buy it or purchase it, there was also five bad reasons not to purchase it or to get it. I wanted to make sure he had thought through the ying and the yang, the pros and cons.

Robert Barker: The multiple quotes for a PO and the pros and the cons, that went from everything to buying a desk or a wastebasket to acquiring a company. How did that scale? How were you able to scale that throughout the company?

Ray Zinn: Well, that’s a funny thing because there are obviously different levels of cost, and people say, “Well, don’t sweat the small things.” Well, I guarantee you, if you don’t sweat the small things, the big things are going to become a mess. We had, looking at every detail of the purchases that we did, whether we, as you said, a wastepaper basket or for acquiring a company.

The objective there is is, of course, to make sure that we’re spending the money properly and not just saying, “Well, it’s a wastepaper basket or it’s a bunch of pencils,” or something. We want people to know that everything has value, whether it’s a wastepaper basket or acquiring a company.

I’m not going to say you have to spend the same amount of time justifying a wastepaper basket, but we wanted to make sure we were careful in the way that we spent the company’s money, and, as you know, Robert, while you were there, the company never lost money. In fact, we never lost money in the history of the company, from 1978 up until 2002 or 2003, whichever one it was, when we did have to write down, we shut down a fab. We had to write that facility down, and that cost us, to be profitable in that year, but, other than that one time, at the end of that Y2K thing, when business significantly dropped at the .com implosion, the company always made money. We were always profitable, and that’s unusual, I think, for a high-tech company in the semiconductor market to be profitable every single year.

In fact, people still can’t believe it. They just say, “Ah, I don’t believe it,” but it’s true. Right, Robert?

Robert Barker: It’s absolutely true, and there was never, in my mind, we were never going to be not profitable because of the spending and the whole mentality of the company was around … We got the most out of every dollar and we watched our sales. We were obsessed with what the sales were going to be. We did an annual plan.

 Maybe you can talk about how that annual plan worked and how that was important and how that all came together.

Ray Zinn: Well, an annual plan has various reasons. One is so that you are properly able to fund a company for the upcoming year, and the other is to motivate or to drive the sales to hit that or achieve that goal. It is  really a twofold thing. One, to make sure we had the money to execute on the plan. Two was to motivate the sales force. We actually had two plans, as you would. Make sure we had enough money, and then number two is to get the sales force motivated.

Robert Barker: I thought the thing that was most interesting to me and took me a while to get used to this, but we updated the plan every quarter because we were never on the plan. I was lucky, during the time that I was CFO, we were always … The sales were always higher than we had planned it, so you would make us do another plan. Why was that important?

Ray Zinn: Well, a plan is a goal or something that you want to achieve, and so, as you know, the planning process, you are doing … You set the plan and then you follow up by looking at how you did, and then you revise it, and so it’s that circle of planning from setting the goal to reviewing it, and then to modifying it, so forth. We did that quarterly. That was very important because the sales department had to justify why they didn’t hit the plan. In fact, their bonuses and their compensation was highly attuned to the plan. They want to make sure that they’ve got their bonuses, and they want to make sure the plan wasn’t set to high.

 You made a comment. You say, “Well, I remember hitting the plan,” and that’s a good point, but, remember, I said, “There were two plans.” One was to make sure, financially, that we had the money to execute on the plan, and the second was to motivate the sales force. To make sure you had enough money, you didn’t want to understate the plan. If you understated the plan, of course, then you’d say, “Well, I can’t … We can’t execute on it because we didn’t have the resources or the funding to do it.” We did that. We had the financial plan was to make sure we had the money, and number two was then motivate the sales force.

Robert Barker: You had a special, I think a term that we used a fair amount, ready, shoot, aim. Ready, shoot, aim.

Ray Zinn: That comes from Tom Peters’ book, In Pursuit of Excellence. Back during the World War II, I guess, or maybe even World War I, they would fire for effect. In other words, they would … The battleships shoot offshore, would shoot, and then the gunner, the gun control officer, would say, “Well, you’re high by 100 meters or low by 200 meters,” or whatever. What they would do is they would ready, shoot, and then aim because that aiming is once you have modified the target setting where you’re high or low, that’s what you would do, but if you just did ready, aim, aim, aim, aim, aim, and never fired, you never know which way, whether you were going to be high or low.

 The philosophy at Micrel was to ready, shoot, and then see where we hit rather than just sit there and constantly aim and never pull the trigger.

Robert Barker: One of the things that I really became aware of was that it’s almost impossible, once you have a plan, it’s almost impossible that every piece of that is going to come together, especially the sales, the mix of products and everything is different, and I think, to this day, I operate my life like this. We look at it quarterly and then make those changes. I think that was an integral part that really helped me.

I think the last thing was we did a five-year plan. Maybe you could talk about that plan and how that integrated into the whole organizational frugality again.

Ray Zinn: Well, the investors like to know that you’re looking out, that you do have the ability to be able to go from point A to point B. In the semiconductor industry, products are always rolling off because of the age. You have to always refresh your product line, and it takes two to three years to introduce a product. If you didn’t have a plan to grow your company over time, then you’re going to go stagnant. “You become a buggy whip,” as they say. The world moves on, and if you don’t, you’re … Remember, you gave a talk one time called Who Moved the Cheese? Remember that talk?

Robert Barker: I did.

Ray Zinn: That’s a book, right? The Who Moved the Cheese book.

Robert Barker: Yeah, it is a book.

Ray Zinn: If you’re not constantly looking where the cheese went in that story, then you’re going to starve to death because you’ll always go back to the same route, and that route, of course, will not lead you to growth. You have to look out. If you don’t have a plan to get to growing at some rate, you’re going to ultimately die.

Robert Barker: A lot of people said that not only did we squeeze the penny, but you wanted to spend it twice.

Ray Zinn: Spend both sides of it, right?

Robert Barker: Right.

Ray Zinn: There’s two sides to a dollar. We spent both sides of those dollars. Well, again, you don’t stay profitable, as a company, if you don’t spend both sides. Funding is really important for a company, and you want to make sure that you have that ability to fund the company without having to constantly raise money. Self-funding is a better approach than constantly having to go out and raise that money.

 For those of you who are listening to this podcast, if you don’t have the money in place to grow your company, you’re going to spend a lot of time trying to raise money, and that’s not the way you want to be. You want to raise enough money to get profitability before you decide to go.

 You just told me before our podcast that you’ve now decided to get back in being a CFO again because you’ve found a little company and they raised some money, and, hopefully, Robert, that you guys have raised enough money to take you to profitability so you don’t have to go out and raise some more money in a year or two.

Robert Barker: Well, Ray, the one thing that was always good about Micrel, because of the organizational frugality, we always had the money to take advantage of every opportunity, also, that came along. We always had the funds to do that. If you saw the opportunity, you had the funds to do it.

Ray Zinn: That’s correct. Again, you have to be fast on your feet, flexible, and they say, “Blessed are the flexible for they shall not get bent out of shape,” so you want to be flexible. “You want to have the ability to shuck and jive,” as they say, and that’s true when, as you know, you’re a sports fan, you have to know your opponent, and you have to be able to work out the plays to defeat your opponent. You have to be flexible, and you have to be able to change on the run.

Robert Barker: I really thank you. When I joined as the CFO of Micrel, you had been the first CFO of the company. I was worried that you were going to be continuing to be looking over my shoulder. That never was the case. In fact, I learned a lot. I learned more about being a CFO from you than I had from all my previous experience because I began to understand this whole idea of frugality and how, when it pervades a company, it increases the performance of the whole company.

Ray Zinn: Well, Robert, you have to let people do their job. If you don’t hire the right people, shame on you. You have to have people that are able to do their job, and if they are capable of doing their job, let them do their job. That’s the key to running a successful organization is just to not micromanage your people, but let them manage themselves. I thoroughly interviewed you and made sure that you were the kind of person that I could trust to do the job of being the CFO.

Robert Barker: Well, thank you, Ray, and I think that we also, along with organizational frugality, probably for time frugality, I think we’ve run over the time that we had allotted for this.

Ray Zinn: Well, thanks, Robert, I appreciate you being able to come today and do this podcast with me. Say, “Hello,” to your wonderful wife and family. Appreciate this opportunity to be with you.

 Again, please continue listening to Tough Things First Podcast. You can send us questions if you have things you’d like to understand or know or ideas or suggestions. We’re here and open to discuss them. Please read my first book, Tough Things First, which has been out for a few years, but it’s becoming a textbook now at several universities, and then my new book, Zen of Zinn, which is a philosophical book that’ll tell you how to live your life. Again, thank you for joining us, and look forward to talk to you next time.

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