Malcolm Gladwell is a magnificent writer and a wonderful story teller. He also has a unique ability to weave disparate elements into a fresh narrative. He is at the top of his game with Outliers. Here are a few of the major ideas I took from the book:

* Opportunity plays a larger role in success than most anyone previously imagined.

* Culture and heritage have a surprisingly significant impact on certain attitudes, behaviors and aptitudes.

* People who practice a lot get better at their craft than those who practice less.

* Those who try harder and longer perform better than those who invest less effort and time.

I hope Gladwell's point is that success takes more than talent. To my mind, that makes perfect sense. But talent does matter. It matters a lot. Gladwell makes the point that most NHL stars from Canada are born in January, February or March. That is intriguing and enlightening. But it doesn't mean that talent is irrelevant. It means that players with a combination of talent AND "other advantages" (birth month and other factors) have the best shot at success in professional hockey. If these "other advantages" were the sole determining factor, every Canadian boy born in January, February and March would play in the NHL.

Even though I'm a little uncomfortable with some of the conclusions I believe Gladwell is pointing toward, this is a book filled with ideas well worth considering.

I know I said I'd stop talking about the black hole of payroll expense &ndash and I really intended to. But Seth Godin had a post that I just have to mention. In that post he said,

"Many businesses that are in trouble are in trouble for a simple reason: they're the wrong size ...A newspaper that only had a few dozen employees would be doing great today. But they have hundreds or thousands of employees because that was an appropriate scale twenty years ago. When I started my first web company fifteen years ago, the idea that you could be successful with six or ten employees was crazy, but today many of the most successful companies have not many more than that. That's 15,000 fewer employees than eBay has."

The way we were successful in the past isn't the way we're going to be successful in the future. Head count and payroll expense have to head south if we're going to prosper.

It's hard to imagine anyone has completely missed the meltdown in our economy. But here's what I'm wondering:

How many people in your company have radically changed their behavior in response to the economic chaos?

As I look around, I'm guessing not too many. Maybe it's denial. Maybe it's fear. Maybe they just don't get it. But I'm seeing very little in the way of radical action. And if there was ever a time for radical action, this is definitely it.

Like most companies, ours needs to sell more. So I set a goal for myself – what Jim Collins and Jerry Porras call a BHAG – a, Big, Hairy, Audacious Goal. My BHAG is to contact 500 new business prospects in the next 100 days. It's impossible that something good won't come from that.

I've suggested that in the quest for consistently solid financials, it's a good idea to remove all unnecessary costs from your business. The problem is, everything you spend money on seemed at some point like a necessary expense to someone. So, how do you decide what's necessary and what's not? Maybe the following questions can provide some guidance:

If we didn't spend this money, would the quality and/or differentiation of our product be compromised?

If we didn't spend this money, would the service we provide to our customers be diminished?

If we didn't spend this money, would our sales be jeopardized?

If we didn't spend this money, would we limit the ability of our people to do their jobs right?

If we didn't spend this money, would it damage our ability to recruit and/or retain the people we need?

If you examine every check you write through the filter of the questions above, you're likely to identify some costs that fall a bit short of truly necessary.

In his book, Doing What Matters, James Kilts lobbies for what he calls Zero Overhead Growth – ZOG. Every executive and business owner ought to paste the following passage on his or her bathroom mirror:

"One of the things I am known for in each company I've worked – General Foods, Kraft, Nabisco and Gillette – is my unrelenting efforts to remove unnecessary costs. If a company's cost structure is bloated and high versus its competitors', winning is virtually impossible. If you remove unnecessary costs and use those funds to invest in new products, increase marketing, and improve capabilities, winning is within your grasp."

The point is to get rid of unnecessary costs. Kilts isn't advocating slash and burn. He's saying spend your money on what really matters. Who can argue with that!!?? Sure, it takes discipline to root out unnecessary costs. Of course, it's hard work. But can we possibly consider ourselves prudent if we don't do this?

Here's the truth: I haven't always walked the talk. In fact, it's only in the last couple of years that I've come at this task with anything like commitment. But I do it now, consistently and with a vengence. And I regret every single dollar I squandered before.

In his career, James Kilts was the CEO of Kraft, Nabisco and Gillette. He is also the author of a book entitled, Doing What Matters. The book doesn't make my Top Ten list of leadership books, but it has real value.

In the book, Kilts tells the story of how the senior leaders at Gillette all agreed that overhead expenses in the company were too high. But none of them thought the expenses within their own organization were too high. In other words, Some Other Dude Did It. Kilts said this:

"With my group, we had to deal with the denial of each of my executives that they were part of the problem. Rather than looking only at the macro numbers for Gillette, we had to see that the problem was widespread throughout the company, not restricted to a few functions, businesses, or even geographies."

We're all capable of this kind of denial. Facing it makes it possible to take the next step.

This will be my final post (for now) about the importance of managing payroll costs in order to produce solid financials. It's a simple example that I hope brings into stark relief the critical nature of payroll expense.

Let's say you own a business (or manage a business unit) that has annual revenue of $1,000,000 and currently employs 10 people. If we apply the broadest averages to this business, we'd expect the business to produce a pre-tax profit of $80,000 - $100,000.

Now, let's assume you could find a way to eliminate one full time position. Again, on average, that would save about $50,000 in payroll expense, all of which would drop directly to the bottom line. Think about what that means:

You could increase your profit by 50% or more by eliminating one position.

Would it be hard to operate your business with one less staff member? Maybe. But then again, maybe not. If you have the right people on the bus, I'm guessing most of them would be willing to pick up the slack (if there was any) in order to secure the success of the business, and their own livelihoods.

Payroll expense has an insidious way of creeping up. It is so easy to hire, and so hard to fire. But please keep in mind, producing solid financials requires constant vigilance and a consistent willingness to do the tough stuff.

"True urgency is driven by a deep determination to win, not anxiety about losing."

And I liked a couple of other major ideas. But I couldn't shake the feeling that this was a book that should have been a magazine article. That's OK. What really bothered me is that it seemed to me this book has more to do with focusing on core activities, than it has to do with urgency. Like here:

"True urgency focuses on critical issues, not agendas overstuffed with the important and the trivial ... With an attitude of true urgency, you try to accomplish something important each day ..."

I'm probably nit-picking. It's a good (maybe not great)book.

Not everyone has embraced my assertion that payroll is too high in every business in America. In fact, some folks have been downright outraged at the suggestion. So, let me offer an olive branch (of sorts) in the form of a question.

What 1% of the activity undertaken in your business contributes the VERY LEAST to your survival or success?

I'm guessing there's 1% that could be jettisoned without doing much damage – a report you don't use anymore, a meeting you could live without, a process that could be streamlined? It might not sound like much, but what would it mean to you and your business to increase your profit by 1%? It probably matters. A lot.

Why not try it? And then try it again in a few months. While you're making small changes you might stumble onto something big. Things happen that way.

Whether or not you buy my premise that the payroll expense of every company in America is too high, you probably are willing to concede that many companies have bloated payrolls. So let's look at how that happens.

As much as we don't want to admit it, most of our businesses grow kind of helter skelter – too often there isn't a master structure and staffing plan. As a result, a lot of us end up hiring to put out a fire. When the fire is extinguished we're left with a person who may or may not fit perfectly going forward.

Occasionally that person gets moved to a job where he does fit. Too often, though, he's banished to a place where he won't do much damage. As this scenario plays out over a few years and more than a few failed hires, payroll expense skyrockets while productivity plunges. Those once solid financials become a little less solid.

So here's what we need to do. We need to scrutinize the function and performance of every single person on our payroll. We need to ask ourselves two questions:

1) Is every function (task) being performed absolutely vital to our success?

2) Is the performance of the person in every position as good as it needs to be?

Not everyone who receives a paycheck is advancing the cause of your company. Much of the "work" undertaken on a daily basis isn't vital to your success. In fact, there's a real possibility that some of the people you employ and some of their "work" is actually getting in the way of your success.

Eliminating non-vital tasks and under-performing people is central to producing solid financials.

Solid financials are a reflection of solid business operations. Solid business operations require that you sell a product or service for more money than it costs you to produce and deliver that product or service. When that happens, you create earnings, which are the foundation of solid financials.

I don't mean to be overly simplistic or to appear condescending in any way. But some Wall Street geniuses (and others) seem to have forgotten (or deliberately obscured) this point, so it's important to put the truth front and center:

Financial Statements are the report card on your company's performance.

Everything you do in business affects your financials. But some stuff has a greater impact than other stuff. A lot of times, the 800 pound gorilla is payroll expense. For many businesses, payroll expense is the largest single overhead item, often representing 50%-70% of total overhead.

In every business in America, payroll expense is too high. Usually way too high.

In posts to follow, I'll explain why that is and what to do about it.

I've suggested there are four deliverables of great leadership. Over the past few weeks, we've explored three of those in some detail. In this post, we'll consider the final deliverable: Solid Financials.

It's hard to imagine anyone would quarrel with the idea that Solid Financials are a requisite of great leadership. But coming up with a comprehensive and specific definition of Solid Financials that fits for all companies is at least daunting, and probably impossible. But there are some elements that are pretty much universal – Solid Financials:

Enable the ongoing operation of the business for the foreseeable future.

Are attractive to lenders/investors upon which the business depends for capital.

Make it possible for the business to expand sales and operations at a pace that is safe for the business and acceptable to the owners.

Provide a return significantly above the cost of capital.

I'm not a financial guy. But these elements seem to me to be the minimum requirements for defining Solid Financials.

Here are some additional thoughts by John Bogle from his book, Enough:

"Building a great organization demands finding the right words to communicate the best ideas and the highest ideals, words that convey purpose and passion and vision."

Bogle quotes the German philosopher, Goethe:

Are you in earnest; Seize this very minute; What you can do, or dream you can do, begin it; Boldness has genius, power and magic in it."

Bogle quotes Joseph Schumpter on the motivations of entrepreneurs:

"1) The joy of creating, of getting things done, of simply exercising one's energy and ingenuity, and"

"2) The will to conquer: the impulse to fight, ... to succeed for the sake, not of the fruits of success, but of success itself."

Finally, Bogle offers a quote from Rene Descartes that just might explain the mess our economy is in:

"A man is incapable of comprehending any argument that interferes with his revenue."

Amen.

When we think of growth, we often think of increasing revenue or profit or throughput or quality. Those things are all critical, but they're what I think of as end-game goals. And usually, they're tough to grow directly. Here's what I mean:

If you want to increase sales, what has to happen? Could be you need more leads, so perhaps you need better prospecting processes. Could be you're wasting too much time on prospects that never convert to sales, so maybe your sales folks need some training on qualification. Could be you're missing sales because your inventory levels are too low and you can't deliver within the customer's time frame.

A lot of factors could be holding sales back. So, increasing sales isn't a matter of pep talks or making more calls or working harder (necessarily), it's a matter of growing the knowledge and skills of your people. It's about improving the processes that make it possible for you to make sales. It's about understanding and addressing the core competencies that provide the foundation for your business.

Most everything you want to grow has a number of moving parts. As you rebuild and polish each of those parts (and each of your people) the machine works better. It's not easy. It requires hard work, robust dialogue and a willingness to cop to the truth.

John Bogle is a remarkable and accomplished guy. He is fundamentally the father of the mutual fund industry and a voice of reason in this time of chaos. Everyone should read every page of Enough but here are some snippets:

"In 2007 alone, the 50 highest-paid hedge fund managers together earned $29 Billion. If you didn't make $360 Million in that single year, you didn't even crack the top 25.

"By the beginning of 2008, the value of these derivatives of the S&P 500 Index – these futures and options – totaled $29 Trillion, more than double the $13 Trillion market value of the S&P 500 Index itself."

Am I the only one who is absolutely staggered by this? No wonder those hedge fund managers were making a killing. This is just nuts.

"... highly diversified portfolios of stocks weighted by their market capitalizations continues to represent the gold standard for investors.

Here's the big one for me:

"Our financial system has, in substance, challenged our corporations to produce earnings growth that is, in truth, unsustainable."

Probably true.

One of the best ways to insure the long term viability and success of your business is to focus on increasing the capabilities of your company. A good place to start is with the question:

What Do They Pay Us To Do?

Of course, what you sell is often different from what your clients buy, so the question isn't as easy as it sounds. But understanding what your clients value enough to fork over their money is crucial. A precise understanding of why your clients give you their money is the starting point for capabilities growth.

A quick example: A couple of decades ago, I worked in marketing for a Wendy's Old Fashioned Hamburgers. The best Operations Manager I met during my tour of duty with Wendy's always insisted orders be served within 60 seconds of the order being placed. He understood that what people were paying for was fast service. Sure, quality and taste and cleanliness mattered – but it's a fast food joint and if customers didn't get their food fast, nothing else mattered all that much.

Every business has a what the customer pays for component. Building capabilities that propel your company's growth starts with widespread understanding of this component at every level of your company.