10 Rules for Giving Negative Feedback

Here's how to handle employees when a kick in the rear is more appropriate than a pat on the back.

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Praising good performance is easy, but what about those times when someone on your team needs a kick in the butt more than a pat on the back?

In that case, you'll need to give some negative feedback--and do it without demotivating or demoralizing the other person. This post explains exactly how to do this.

Before we get started, though, it's important to remember that the goal of feedback is not to tell people what to do or how to do it. That's mistaking the process for the goal.

The actual goal of feedback--even negative feedback--is to improve the behavior of the other person to bring out the best in your entire organization.

With that in mind, here are the 10 rules:

1. Make negative feedback unusual.

When a work environment becomes filled with criticism and complaint, people stop caring, because they know that--whatever they do--they'll get raked over the coals. "I try to give seven positive reinforcements for every negative comment," says Dan Cerutti, a general manager at IBM.

2. Don't stockpile negative feedback.

Changes in behavior are more easily achieved when negative feedback is administered in small doses. When managers stockpile problems, waiting for the "right moment," employees can easily become overwhelmed.

"Feedback is best given real time, or immediately after the fact," explains management coach Kate Ludeman.

3. Never use feedback to vent.

Sure, your job is frustrating--but although it might make you feel better to get your own worries and insecurities off your chest, venting a string of criticisms seldom produces improved behavior. In fact, it usually creates resentment and passive resistance.

4. Don't email negative feedback.

People who avoid confrontation are often tempted use email as a vehicle for negative feedback. Don't.

"That's like lobbing hand grenades over a wall," says legendary electronic publishing guru Jonathan Seybold. "Email is more easily misconstrued, and when messages are copied, it brings other people into the fray."

5. Start with an honest compliment.

Compliments start a feedback session on the right footing, according to according to management consultant Sally Narodick and current board member at the supercomputer company Cray. "Effective feedback focuses on the positive while still identifying areas for further growth and better outcomes."

6. Uncover the root of the problem.

You can give better feedback if you understand how the other person perceives the original situation. Asking questions such as, "Why do you approach this situation in this way?" or "What was your thought process?" not only provides you perspective, but it can lead other people to discover their own solutions and their own insights.

7. Listen before you speak.

Most people can't learn unless they first feel that they've been heard out. Effective feedback "means paying attention and giving high-quality feedback from an empathic place, stepping into the other person's shoes, appreciating his or her experience, and helping to move that person into a learning mode," says Ludeman.

8. Ask questions that drive self-evaluation.

Much of the time, people know where they're having problems and may even have good ideas about how to improve. Asking questions such as "How could we have done better?" and "What do you think could use improvement?" involves the other person in building a shared plan.

9. Coach the behaviors you would like to see.

Negative feedback is useless without a model for how to do better. But simply telling the other person what to do or how to do it is usually a waste of time.

Instead, use this tried-and-true coaching method, which is based upon what top sports coaches do.

10. Be willing to accept feedback, too.

If you truly believe that negative feedback can improve performance, then you should be willing to accept it as well as provide it. In fact, few things are more valuable to managers than honest feedback from employees. It's to be treasured rather than discouraged or ignored.

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Geoffrey James writes the "Sales Source" column on Inc.com, the world's most-visited sales-oriented blog. His newly published book is Business to Business Selling: Power Words and Strategies From the World's Top Sales Experts. @Sales_Source

Meet the CEO of America's Fastest Growing Company

How a poor immigrant kid from Brooklyn wound up running Unified Payments, No. 1 on the 2012 Inc. 500, with a three-year growth rate of 23,646.3 percent.

Jeffery Salter

Brighton Beach Memory Oleg Firer, miles from where his journey began.

Lap of Luxury Firer, at his Miami office. His first job: salesman at The Wiz.

COMPANY PROFILE

Company: Unified Payments

2012 Rank: No. 1

3 year growth: 23,646%

2011 Revenue: $59.5 million

Poster boy for the American dream? Quite possibly. Born in the Soviet Union, Oleg Firer arrived in Brooklyn, New York, at 12 and grew up in the borough's Brighton Beach neighborhood. He worked hard, avoided delinquents and drugs, and at 17 started his first business, a cell-phone retailer. Barely into his 20s, and without a college degree, Firer was serving as a vice president at a publicly traded communications company. In 2007, at 29, he co-founded Unified Payments. The company now processes $10 billion worth of transactions for 100,000 merchants a year--and it's still growing fast. Now 35, Firer and his family live in Miami. He drives to work in a Bentley. Life, he says, is good. As told to Darren Dahl.

I was born in Ukraine. But my family, who is Jewish, decided to flee the Soviet Union. My dad was a gym teacher there, and my mother worked for a bank. We had a challenging trip that took us through Austria and Italy before we finally got to Brooklyn.

My family didn't have much money when I was growing up. My dad worked as an assistant physical therapist, and my mom worked for a nonprofit. I was always working, taking odd jobs whenever I could. Fortunately, I am a quick learner and have a photographic memory, so I remember things in great detail.

"I always had to prove myself'because of my age and because I don't have an Ivy League degree."

I grew up living in small apartments in Brighton Beach and Coney Island, which are rough neighborhoods. Growing up there made me stronger. I always set higher expectations for myself than those around me did. Rather than get into drugs or crime, I focused on working hard and learning.

My first real job was working for The Wiz as a salesperson when I was 16. By the time I was 17, I was the youngest manager the store had. After Cablevision bought the company, I started my own company selling wireless devices. I thought about going to school for business, but I was already making too much money.

The CEO of a large company called SpeedUS recruited me to help with its marketing programs. I worked there for several years and became a vice president and ran my own division. I learned a lot about mergers and acquisitions. But I felt like I had to constantly prove myself'because of my age and because I don't have an Ivy League degree.

In 2002, I was looking for a new business opportunity when a friend told me about the payment-processing industry. I thought it looked interesting, because you work with recurring revenue, which means you don't start off with zero dollars every month. A year later, I partnered up with my friend to start a payment-processing company.

When I do something, I want to learn a business inside out. If one link in the chain breaks, I want to know where to step in. That meant I needed to learn the business from the ground up, including sales, underwriting, and risk management. If I do something, I commit to it 100 percent.

About five years later, I got together with a former colleague who worked for a private equity group, and we started the company that is now Unified Payments. I wanted to do something really, really big. We committed significant capital to making strategic acquisitions.

We were looking for distressed equity situations'other payment-processing companies that couldn't service their debt or had grown too fast. We acquired eight businesses. We shut most of them down and rolled their merchants into our existing service. We were in the right place at the right time, and we had the capital to make it happen.

We continued to grow organically through the recession as well. As our society has become more and more cashless, payment processing has become economically agnostic. We make money no matter what the economy is doing.

I got where I am because I wouldn't take no for an answer. I always remember where I came from and that I could end up back there with nothing. A few years ago, my wife, who is a refugee from Moldova, our two daughters, and I moved to Miami. My parents, who still live in Brooklyn, are very proud.

Darren Dahl is a contributing editor at Inc. Magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors.Dahl lives in Asheville, NC.

Want to Start a Company? There's No Time Like the Present

Why were so many Inc. 500 companies founded during the recession? Because a good idea is more powerful than a bad environment.

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Sunny outlook Vanguard Energy Partners is among the Inc. 500 companies bold enough to have opened for business in 2008. The company (No. 212 on the list) is installing this million-square-foot solar array atop a warehouse in New Jersey.

The self-help prophet Napoleon Hill was a particularly fecund source of inspirational aphorisms. Entrepreneurs take many of his maxims as gospel, including this one: "Don't wait. The time will never be just right."

Certainly 2008 was no one's idea of the right time to do anything other than hang on to an existing job'by one's teeth if necessary. With seed capital and consumer spending down and the future as predictable as a coin flip, many aspiring entrepreneurs sensibly chose to aspire a while longer. From 2007 to 2010, the U.S.'s start-up rate declined 12 percent, according to the Small Business Administration. In the second quarter of 2008, the share of companies that had started since the previous quarter fell below 3 percent for the first time since the early 1990s.

So here's to the 20 percent of Inc. 500 founders who launched in 2008, the base year for calculating the 2012 list. We salute all our accomplished honorees, but this group deserves its own turn in the spotlight. Yes, starting a business in a recession has advantages: a surfeit of affordable talent, a winnowed field. Still, small-business failures increased 40 percent from 2007 to 2010. Making a risky move in a risky economic climate requires extraordinary confidence and courage.

But to what extent were these founders being heroic and to what extent opportunistic or shrewd? We were curious whether our 2008 entrepreneurs were more than ordinarily concerned with demonstrable demand and airtight business models. Or did they approach their start-ups like Butch Cassidy and Sundance: plunging over a cliff, prepared for annihilation but anticipating'for no good reason'deliverance? To understand how our recession-era founders viewed the decision to launch, we asked them to choose among three explanations for starting their companies:

A. I was laid off or otherwise hurt by the economic downturn and believed self-employment was my best option.

B. I had an idea for a business model that was very likely to do well even in an economic downturn (or one that might flourish because of an economic downturn).

C. I chose to discount the increased risks posed by a teetering economy because I'm an optimist and this was my dream, so I decided to seize it.

We had expected a low response on A. Entrepreneurs-by-necessity are less likely than entrepreneurs-by-choice to create fast-growth businesses. And, in fact, just 4 percent of the founders who responded to our survey cited job loss as a factor. One of them'Dave Decker, founder of Complete Merchant Solutions (No. 19 on this year's Inc. 500)'described finding himself on the street when his employer went out of business. (Adding injury to injury, Decker had taken out a $50,000 loan to help save the company.) "My family of seven were living off of credit card cash advance checks, and it was a very daunting time for me," Decker recalls. Having lost an earlier job under similar circumstances, he started an electronic-payment company because he was "tired of being reactive and at the mercy of the economy."

A far larger 50 percent cited the relative invulnerability of their business models as justification for launching in a downturn. Many entrepreneurs carry a strain of exceptionalism: They consider their ideas too good to fail, no matter how dire the economy. And some make a very good case. Greg Sanders, for example, is a co-founder of Cartagz (No. 10), which allows California drivers to register vehicles and pay fines online. People will never stop driving (in California, anyway), and they will never stop loathing the DMV. Thus, Cartagz credibly sounds like a business for all seasons.

Other 2008 start-ups were in perfect sync with the times. Most of those focused on saving consumers or businesses money, whether through retrofitting lighting to reduce energy costs (Macro Energy, No. 380) or providing outsourced services for health care organizations (Pacific Global, No. 318). CardCash.com (No. 68) is an online marketplace in which consumers can sell gift cards they don't especially want for 80 percent of their value, and other consumers can buy them for 90 percent. Because of the recession, "more people are selling their gift cards in order to pay their rent, mortgage, groceries, and basic necessities," says co-founder and CEO Elliot Bohm.

"Then there's the cockeyed-optimist contingent, the 46 percent who recognized the gamble but couldn't resist."

Then there's the cockeyed-optimist contingent. Many of the 46 percent who answered C to our survey recognized the gamble but couldn't resist. The potential payoff was just too good. Alison Provost, CEO and co-founder of digital-media company Touchstorm (No. 268), already had her stake thanks to the sale of another business in which she was a 50 percent partner. "When that happens and you're an entrepreneur, you have two choices," says Provost. "You can take your winnings off the table and send a nice percentage of them to the government. Or you can roll some of them back into a new business, creating jobs in a downturn and, hopefully, creating even more jobs as the business takes off and grows."

Others, less well positioned, cheerfully cited circumstances under which normal people wouldn't dream of starting companies. Larry Borden launched Aardvark Event Logistics (No. 165), which provides tour operations for mobile marketing campaigns, two months after Lehman Brothers collapsed and six months before his second child was due. Chris Pershing walked away from a well-paying, stable job to become co-founder of EagleView Technologies (No. 133), a provider of 3-D aerial-measurement services. "As sole provider for my family of five, it was a big, risky move that would have likely left us in a bad place financially if it did not gain much traction within the first 12 to 18 months," says Pershing.

Sugata Biswas was similarly situated'his six-figure salary largely supported a wife and three young daughters. For years, Biswas had yearned to start a business but always shrunk back from the precipice. Then, while on a business trip, he was in a car accident that killed one of his colleagues. He launched Cadence Research & Consulting (No. 182) shortly afterward. "The experience was a reminder of the fact that we don't have any guarantees," says Biswas. "If we keep pushing things off for another day, that day may never come, because we won't be there to experience it." 

If optimists and carpe diem types dominate the Cs, there is also the occasional idealist. In 2008, Rich Johnson, a brand-new mortgage hanging heavy around his neck, quit his employer of 10 years because he disagreed with its values. "Though they spent tens of thousands of dollars on corporate retreats, extravagant awards banquets, and company golf tournaments, they gave next to nothing away to charity. I saw the whole thing as hypocritical, and I was contributing to it," he says. Inspired by Patagonia's humane culture and aggressive philanthropy, Johnson launched the Premier Group (No. 120), a business in the construction staffing industry, no less ("a suicide mission by all counts," as Johnson puts it). The company started donating to charity with the first dollar it earned and last year gave $231,000 to childhood cancer research.

This entire Inc. 500 has survived and thrived through some very dark days. The honorees are tough and savvy, and their achievements remind us how good it feels to be moving fast, in the right direction. They embody a lesson that dates back even before Napoleon Hill'all the way to ancient Rome. Fortes fortuna adiuvat. Fortune favors the bold.

How the 2012 Inc. 500 Companies Were Selected

This year's list measures revenue growth from 2008 through 2011. To qualify, companies must have been founded and generating revenue by March 31, 2008. Additionally, they had to be U.S.-based, privately held, for profit, and independent'not subsidiaries or divisions of other companies'as of December 31, 2011. (Since then, a number of companies on the list have gone public or been acquired.) The minimum revenue required for 2008 is $100,000; the minimum for 2011 is $2 million. Revenue figures given in the company profiles are for calendar year 2011. Employee counts are as of December 31, 2011. Full-time and part-time employees are included in the employee counts; independent contractors are not. As always, Inc. reserves the right to reject applicants for subjective reasons. The companies of the Inc. 500 represent the top tier of the Inc. 5000, which can be found on Inc.com.

Leigh Buchanan is an editor at large for Inc. magazine. A former editor at Harvard Business Review and founding editor of WebMaster magazine, she writes regular columns on leadership and workplace culture. @LeighEBuchanan

4 Traits of Highly Effective Delegators

You know you don't want to choke your staff with micromanagement minutiae. Here's how to hold yourself back and get the best out of your employees.

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Before opening my business, I worked for a lot of companies--big and small, corporate and family run, traditional and innovative. I encountered many types of managers, and I learned that those who managed best were those who allowed staff members to think boldly, to move swiftly, and to do so with a game plan rather than a rulebook.  

When it came time to open Metal Mafia, I knew that I wanted my company to be a place that valued motivation and maverick thinking over micromanagement. The only way to make that happen was to be willing to delegate, and as a business owner, giving up control sometimes was scary.

To beat back fear in favor of freedom, here's how to comfortably delegate:

Establish checkpoints.

Employees thrive when they feel they are not only entrusted with, but accountable for, the projects they work on. That said, as business owners, we need to know how projects are advancing. Rather than asking about specific details every step of the way, I check in with staff members at regular intervals, but in a more general way. My staff members are able to report progress instead of feeling as though they are facing an inquisition. This allows me to head off problems before they happen, but in a way that does not compromise the autonomy of the people working for me. 

Ask a lot of questions. 

One of the most powerful tools in delegating successfully is to ask questions rather than give instructions. If you say you trust your employees but then tell them how you want them to do every little thing, the message is clear that you don't really trust them after all. Questioning is especially important with new hires, because it sets the tone for how the employee will be able to handle responsibilities going forward. When a member of my staff asks me what to do in a given situation, I often respond by asking what he thinks should be done. Then we can discuss his idea, and he can confidently take the reins in finding a resolution.

Make yourself a resource.

Employees can feel just as stressed or nervous as owners do when they are called upon to lead. I make sure my employees know I am there to bounce ideas off of or to lend another opinion when needed. This allows them to feel that coming to me is not a weakness or a sign of distress but rather another tool in the arsenal for getting the job done well. Asking staff people to be autonomous works only if you give them a strong support system. 

Own your mistakes. 

The best way to let staff people know it's OK to take charge is by showing them that the consequences are not dire if they take a wrong turn, as long as they do so in a responsible way. As an owner, I make decisions big and small all day long, and not all of them are right. I tell my employees about the good outcomes as well as the bad ones, and I take responsibility openly and honestly for both. Learning that I sometimes make bad calls allows my staff members to take calculated risks as well, knowing that I will be in their corner if something goes awry.  

Delegating successfully is not only a way to reduce stress; it's also a survival strategy. If you choke your staff with micromanagement minutiae, you miss out on the great ideas that will move your company forward and frustrate the best resource your company has--your employees.

Vanessa Merit Nornberg: In 2004, Vanessa opened Metal Mafia, a wholesale body and costume jewelry company that sells to more than 5,000 specialty shops and retail chains in 23 countries. Metal Mafia was an Inc. 500 company in 2009. @vanessanornberg

Complaining Is Bad for Your Brain

Exposure to nonstop negativity actually impairs brain function. Here's how to defend yourself.

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Do you hate it when people complain? It turns out there's a good reason: Listening to too much complaining is bad for your brain in multiple ways, according to Trevor Blake, a serial entrepreneur and author of Three Simple Steps: A Map to Success in Business and Life. In the book, he describes how neuroscientists have learned to measure brain activity when faced with various stimuli, including a long gripe session.

"The brain works more like a muscle than we thought," Blake says. "So if you're pinned in a corner for too long listening to someone being negative, you're more likely to behave that way as well."

Even worse, being exposed to too much complaining can actually make you dumb. Research shows that exposure to 30 minutes or more of negativity--including viewing such material on TV--actually peels away neurons in the brain's hippocampus. "That's the part of your brain you need for problem solving," he says. "Basically, it turns your brain to mush."

But if you're running a company, don't you need to hear about anything that may have gone wrong? "There's a big difference between bringing your attention to something that's awry and a complaint," Blake says. "Typically, people who are complaining don't want a solution; they just want you to join in the indignity of the whole thing. You can almost hear brains clink when six people get together and start saying, 'Isn't it terrible?' This will damage your brain even if you're just passively listening. And if you try to change their behavior, you'll become the target of the complaint."

So, how do you defend yourself and your brain from all the negativity? Blake recommends the following tactics:

1. Get some distance

"My father was a chain smoker," Blake confides. "I tried to change his habit, but it's not easy to do that." Blake knew secondhand smoke could damage his own lungs as well. "My only recourse was to distance myself."

You should look at complaining the same way, he says. "The approach I've always taken with complaining is to think of it as the same as passive smoking." Your brain will thank you if you get yourself away from the complainer, if you can.

2. Ask the complainer to fix the problem

Sometimes getting distance isn't an option. If you can't easily walk away, a second strategy is to ask the complainer to fix the problem.

"Try to get the person who's complaining to take responsibility for a solution," Blake says. "I typically respond to a complaint with, 'What are you going to do about it?'" Many complainers walk away huffily at that point, because he hasn't given them what they wanted, Blake reports. But some may actually try to solve the problem.

3. Shields up!

When you're trapped listening to a complaint, you can use mental techniques to block out the griping and save your neurons. Blake favors one used by the late Spanish golfer Seve Ballesteros during a match against Jack Nicklaus--a match the crowd wanted Ballesteros to lose. "He was having difficulty handling the hostility of the crowd," Blake says. "So he imagined a bell jar that no one could see descending from the sky to protect him."

Major League Baseball pitchers can sometimes be seen mouthing "Shields on!" as they stride to the mound, he says. He adds that his own imaginary defense is "more like a Harry Potter invisibility cloak."

A related strategy is to mentally retreat to your imagined favorite spot, someplace you'd go if you could wave a magic wand. "For me, it was a ribbon of beautiful white sugary sand that extended out in a horseshoe shape from a private island," Blake says. "I would take myself to my private retreat while people were ranting and raving. I could smile at them and nod in all the right places and meanwhile take myself for a walk on my private beach."

Blake first saw the picture of the island in a magazine, and the image stuck with him. Eventually, he got a chance to try it for real. "It turned out the island was for rent, and it was the same one I'd seen," he says. "So I rented it for a week. And I got to take that walk."

Minda Zetlin is a business technology writer and speaker, co-author of The Geek Gap, and president of the American Society of Journalists and Authors. @MindaZetlin

Secrets from the World's Happiest Workplace

Icelanders are more than twice as happy as Americans. Here's what your business can learn from them.

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Downtown Reykjavik in Iceland

It's a well-known fact that happy workers are more productive than miserable ones. Unfortunately, far from being happy, many workers (especially in the U.S.) are stressed to the breaking point.

How can managers create a work environment that generates happier (and therefore more productive) workers? One answer is to imitate Iceland.

Why Iceland? Turns out that Iceland is one of the happiest countries on earth. Almost three-quarters of Icelanders consider themselves "content," as opposed to only a third of people living in North America.

And that's pretty impressive when you consider that Iceland has some of the worst weather on the planet, is dark all day for half the year, has more-than-occasional volcanic eruptions, and experienced a financial meltdown far worse than the one in the U.S.

With that in mind, here are four tips:

1. Create a Community

In U.S. businesses, success is frequently seen as a purely individual achievement, often at the expense of others. In Iceland, however, conditions are so challenging that there's no surviving (much less thriving) without the help of those around you.

In Iceland, sure, you can achieve success, but only if you're part of something greater than your little selfish self. Communities, and goals that are mutual rather than individual, make people feel more connected and therefore more happy.

2. Encourage Broad Interests

In the U.S., it's considered unprofessional even to have a hobby, much less multiple interests. ("What? You've time for that?") In Iceland, people are proud to publicly play multiple roles and talents. The mayor of the capital city, Reykjavik, for instance, is also known as an actor, a comedian, and a rock musician.

Workers are happier when they can be who they really are, rather than pretending to be "all work." Therefore, rather than looking to hire nose-to-the-grindstone workaholics, actively encourage employees to be themselves and try being who you really are.

3. Put Family First

Most U.S. businesses seem to actively hate families, seeing them as unwelcome distractions from the work at hand. Iceland, by contrast, is beyond family friendly. For example, companies provide nine months of maternity leave--for both fathers and mothers.

Making certain that employees can focus on their families reduces stress and keeps workers on a more even keel. You may not be able to offer months of paid leave, but how about in-house day care? Or how about aiming for a more reasonable (and more productive) 40-hour workweek?

4. Provide Healthier Food

U.S. workers eat tons of sugary and fatty junk food, often because that's all they have time to scarf down between meetings. In Iceland, they eat plenty of fresh-caught fish, as well lots of fruits and vegetables, greenhouse grown without pesticides.

Though you can't be expected to single-handedly halt the U.S. culture's mad rush into obesity, you can make it easier for workers to make better choices, by making healthy foods more readily available and having a long enough lunch break so that fast food is only an option rather than a necessity.

Geoffrey James writes the "Sales Source" column on Inc.com, the world's most-visited sales-oriented blog. His newly published book is Business to Business Selling: Power Words and Strategies From the World's Top Sales Experts. @Sales_Source

12 Things Customers Really Care About

There are several key factors that can cause a customer to sign on the dotted line. Make sure your offering is tied to one or more.

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Selling business to business is impossible unless your offering addresses what really matters to the decision makers.

There are 12 sales hooks that provide a reason for a decision maker to want to buy something from you. So to make sure the deal moves forward, be sure that you have tied your sales message to one or more of the following issues.

1. Finances: Workers must perform, making earnings bigger or costs smaller.

2. Operations: Managers must use every resource (human and otherwise) strategically.

3. Suppliers: Executives must strengthen a firm's role in its industry's supply chain.

4. Business partners: Companies must balance alliances and rivalries.

5. Customers: Retailers and wholesalers worry about how customers will perceive their decisions.

6. Competitors: Executives worry about other companies stealing business.

7. Globalization: Companies must adapt to far-flung risks and opportunities.

8. Regulation: Your prospective customer must comply with laws, protections, and limitations.

9. Internal politics: Savvy managers must resolve organizational differences and turf wars.

10. Career: Workers of all levels are always positioning for their next job assignment.

11. Hiring: Managers need to get talented people on board and productive.

12. Retention: Executives don't want their top people to leave.

Note: Numbers 1 through 8 are from a conversation with Dr. Stephen Bistritz and Nicholas Read, authors of the bestseller Selling to the C-Suite. Numbers 9 through 12 are based on my own observations.

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Geoffrey James writes the "Sales Source" column on Inc.com, the world's most-visited sales-oriented blog. His newly published book is Business to Business Selling: Power Words and Strategies From the World's Top Sales Experts. @Sales_Source