Monday, August 13, 2018

Don't Miss the opportunity to sell during this upcycle


We missed the selling boom during the last positive cycle and were determined that we would not miss another opportunity.
In one of our Breakfast briefing series a few years ago, Dan McCallin former owner and CEO of Timberline Steel made an interesting statement: "We missed the selling boom during the last positive cycle and were determined that we would not miss another opportunity to sell during the next upcycle. We decided to take the steps so that we were prepared." While Dan originally made that statement during the recession of 2002, and later sold the business in early 2006, the message could certainly apply today. We are in the tenth year of this upcycle. We have all learned that economic cycles don't last forever.

The process for you to exit your company may take the better part of a decade. With interest rates still near record lows, the economy still in expansion mode, and sales multiples at high levels, there may be a tendency on the part of business owners to think that the good times will continue for the foreseeable future. While some business owners may believe they can pull the string when they are ready, the truth is, for many business owners, the exit sales cycle may take several years to execute. Professionals will tell you that in order to sell at highest value, the process includes 1-3 years to get ready, 1 year for the transaction, and then you may have to spend up to 3 years with the company after the sale.

Companies can focus on making fundamental improvements to their business that will help them make their company healthier and more attractive than their competitors.
1. Focus on customer net profitability
2. Upgrade management
3. Cleanup business processes
4. Develop a strategic growth and execution plan
5. Position the company to succeed in any part of the business cycle

Focus on customer net profitability. The tendency is to cling to any customers and revenue no matter the profitability level. A common comment is that "at least they absorb overhead." The notion of unprofitable business absorbing overhead may be one of the greatest false beliefs in business. In many cases, overhead that has been viewed as fixed is really a cost that can be minimized or shed. Carrying unprofitable business will be a continuing cash drain that may inhibit your business' ability to grow as the economy improves.

Upgrade management.  While talent availability may be tightening, take advantage of the opportunity to improve. Similarly, this is a great opportunity to review all of your employees and weed out those with below average performance, poor potential, or unrealized potential. Our clients use a simple tool to rank all employees in terms of potential and performance - the results make it very clear which ones have been a drag on the company.

Cleanup business processes. During boom times, many companies claim they are too busy to scrutinize business processes to make improvements and to streamline in order to increase throughput. That "excuse" can ultimately cost you when you try to sell.

Develop a strategic growth and execution plan. You need a plan that will allow you to be agile enough to take advantage of opportunities in the marketplace. There may be market segments that have been slow to come back; some may never come back the same way. Other market segments, however, may present huge new opportunities. Your organization needs to develop a plan and be prepared to execute.

Never waste the opportunity to improve. Take the opportunity to examine everything, reduce unnecessary expenses, trim those underperformers, examine unprofitable business, streamline business processes, etc. 
   
Take a lesson from the Boy Scouts: Be prepared. These steps can add value to your business. Your business can accelerate faster and be well- positioned to succeed in any market. The market for selling a business will likely continue to be ripe through most of 2019. Those businesses that are prepared and ready are finding a hungry group of buyers and investors with lots of "dry powder" that they need to invest. 

The Mead Consulting Group has been helping middle market companies for over 30 years to add value and prepare for a successful transition. Our clients have consistently enjoyed better results. Investment bankers have told us that our clients are among the best prepared they have ever represented.

Monday, July 23, 2018

The "mayhem" guy is back! Protect your company from mayhem

 The "mayhem" guy is back! In a popular series of television commercials for a property and casualty insurance company, there is a "mayhem" character who causes unexpected disasters for auto owners. In one spot, he's a buzzing mobile phone that falls between the seats. A crash results when the distracted driver starts searching or it. Another has a satellite dish falling on a car; in yet another a navigation systems goes haywire causing a crash. The underlying message is that since mayhem is unavoidable, you need insurance. 
It struck me that companies generate their own versions of mayhem - things that may, on first blush, seem to occur unexpectedly, or are just considered unfortunate.
Here are some examples:
  • Discovering that you don't have the rights to use the trade name you've been using for 15 years
  • Discovering that your employees have been plagiarizing content that is used in your product
  • Employees that are developing your blockbuster new product all leave at once
  • A new competitive product offering undercuts your price by 60%
  • Your customers discover that one of your key suppliers has been substituting a hazardous or substandard material resulting in product malfunction or customer injuries
  • A new business model renders your product irrelevant
  • Discovering that new regulations no longer allow you to ship your product
  • Learning that there is no liability insurance for all the products in the field that you've made for the last 10 years...and a dangerous latent defect has just been discovered
  • Discovering that a "trusted" accounting clerk has methodically stolen $800,000 over the last 10 years
All of these are real stories. Some might say, "back luck." Synonyms for mayhem are chaos, disorder, confusion, turmoil. The dictionary defines mayhem as "needless damage." In truth, all of the above examples could have been identified ahead of time and most could have been avoided, or significantly mitigated. In strong economic times, companies can be myopic and can ignore the need for strategic planning, competitive scanning, and can defer implementing business processes and controls.

Some thoughts as you begin to prepare for 2019:
Develop a strategic growth and execution plan (Please - not another retreat, but a meaningful plan for execution).
  • Do a realistic assessment of where you are (exploitable strengths, weaknesses, opportunities and threats)
  • Perform a competitive scan, looking at traditional competitors as well as possible disruptive threats
  • Develop some scenarios of the future (including those at the extremes) and actions to be taken as these might play out
  • Plan how you might react to potential geopolitical events or the next economic downturn
  • Take a hard look at your culture - Are you living your values?
  • Develop specific actions, metrics and accountability to shore up the weaknesses, fill the gaps, address the risks, and take advantage of the opportunities and strengths
Don't let another year go by. Neglecting the next steps in your company's growth and maturity can be very short-sighted. You need to protect your company from mayhem! Contact me to discuss how we can help you do things a bit differently this year.

Monday, June 25, 2018

"If you don't do anything different, what will life look like around here in 12 months?"

"If you don't do anything different, what will life look like around here in 12 months?"

[Editor's Note: As I was reading a blog recently by my friend - that great sales leadership expert, Colleen Stanley - I came upon the above quote. It made me think that this is the big question all of us, as business owners and CEOs, should be asking ourselves. We hear repeatedly from clients - "We should have done this last year"...or years ago.  I hope you find this article though-provoking.                                -dpm]
  
Procrastination is defined as "the action of delaying or postponing something." We all fall prey to occasional procrastination, feeling that we don't have enough information, hoping that the situation will improve by itself, or an employee will finally improve a problem behavior. Do you see yourself or someone you know in the following comments:
  • We're doing as well as industry averages
  • Everyone's going through the same problems
  • We identified this several times but we didn't follow-through
  • He/She has been really trying to improve. Let's give him/her a bit more time.
  • We're going to wait until we hire the new manager/director/CEO
  • If we let that problem/under-performing person go, we'll never be able to replace them
  • We have too much going on, to be able to tackle this now
  • We're going to stay where we are ...for now
If we defer taking action or making difficult decisions, it seldom results in a better situation. Twelve months later, we are faced with the same situation, one that usually looks worse after 12 months of aging. If we keep repeating the same things and expecting different outcomes - well, we know what Einstein reportedly said about the definition of insanity. 

Business owners and CEOs typically know where the problems are. They may be frustrated because, while the issues have been raised previously, the solutions have not been implemented. Many times, having an experienced, objective outside party can be very effective in not only pointing out the obstacles or issues, but also in keeping the business owner/CEO and the organization focused on execution. 

Are you going to use the same approaches next year or try something different? So...as you begin to think about planning for 2019, are you going to approach it the same as you have in the past. How has that worked? Were you able to identify new opportunities or turns in the market? Were you able to embark on new initiatives that provide your company with new competitive advantages, or an improved cost structure, or an intriguing new business model? As you approach the summer months and planning for 2019, ask yourself the question,  "If you don't do anything different, what will life look like around here in 12 months?"

The Mead Consulting Group is focused on helping business owners and CEOs identify and overcome obstacles to growth and profitability. In short, we help business owners and CEOs "think, plan, and act strategically." Contact me to discuss how to do things a bit differently this next year.

Monday, June 4, 2018

Ten Deadly Sins of CEOs and Business Owners¹

[Editor's Note: Being the CEO or business owner can be a lonely job. It is important to get good feedback so that you can keep a balanced perspective. Below are just ten of the deadly sins that can be committed by the guy or gal at the top. I have been at the top or owner of eight companies - and I know it's not always easy to see yourself clearly. This is a reprint of a previous Issue for Growth. I think it still holds true. As always, we welcome your comments.  - DPM]
                                                                                                                                 
Talking Too Much. You never learn by talking, but some CEOs imagine the world to be in desperate need of their constant wisdom. It is a rare subordinate who will risk stifling a CEO. Be inquisitive, ask questions, and listen at least 75% of the time.
Goals Are Too Aggressive. It is wonderful to have a BHAG (Big Hairy Audacious Goal) or vision. It's another to develop overly aggressive goals on a routine basis. Unrealistic goals "demotivate," especially when compensation is involved. One CEO expected his company to continue its 30 percent annual growth rate, not appreciating that with a larger base and a rapidly maturing market their era of high growth in that market had to end. The result discouraged managers.
Personal Power Building is More Important than Value Building. Some CEOs tend to make decisions that enhance their scope and influence, even at the expense of increasing shareholder value. This can be paradoxically true even when the CEO is a large shareholder or the business owner. Dr Robert Kuhn puts it this way: "I want a CEO whose greed exceeds his ego. Good CEOs and business owners should be motivated more by amassing wealth for their shareholders rather than by building empires for themselves."
Not Respecting or Recognizing the Ideas of OthersCEOs and business owners can be egotistical. Highly successful almost by definition, many CEOs would seem to have every right to be self-impressed. However, when you hold the top spot, puffing yourself up at the expense of subordinates impedes the organization. You benefit when your people are encouraged and empowered to generate novel ideas. Recognition of these good ideas breeds more ideas.
Not Focusing on Accountability and Execution. Some CEOs and business owners love new ideas, programs, and initiatives. They introduce change for the sake of change. One company we looked at recently had seventeen (17) major strategies for an upcoming year. Focusing on a executing well on a few carefully selected strategies, developing clear objectives, and holding managers accountable, can be the difference to success.
Managing by SummariesA CEO should perceive the world as it truly is; if cluttered and chaotic, so be it. When information is always "high level," predigested by staffers, a CEO may perceive an artificial world, a virtual reality as it were, of cleanly manicured lawns. Most CEOs have great instincts about their businesses, and such instincts should be nourished by raw data, like, for example, call reports of customers.
Don't Fall in Love. When you sit in the corner office, follow your head not your heart. Every business must have a strategic or financial purpose, and if a business happens to make you feel good that's fine as long as your emotional attachment doesn't interfere with your rational decision-making. CEOs are notoriously vulnerable when making acquisitions.
Feeling Invincible.  CEOs must have superb track records-some are almost unblemished -so they have a proclivity to imagine themselves as invulnerable. The natural corollary is a robust confidence, even if subconscious, that past success assures future success. I can't tell you how many dozens of CEOs I've seen who refused to sell their companies at what would turn out to be, in hindsight, their peak market values, simply because they were convinced that tomorrow's prospects would mimic yesterday's triumphs. Looking backward and looking forward, a humble, healthy respect for the subtleties of serendipity is the beginning of wisdom.
Halo Hiring. In some organizations, many of the senior executives look like the CEO. I mean this quite literally and it can be very funny. Not just obvious characteristics like gender and race, but also personal traits like size and stature, political philosophy, sporting interests, demeanor, even style of dress. In a globalized world where customers and suppliers may be very different kinds of people, it is not wise for the executives of a company to be homogeneous, and hence, uniform in their thinking.
Beware of Averages.  Averages can deceive. For example, assume that, in a pharmaceutical company, prices are declining for one-half of the drugs and increasing for the other half; the fact that the average price of all drugs has remained steady is worse than meaningless information. Strategies for drugs that kept prices steady might not work at all with those whose prices were decreasing or increasing. The same is true for net profitability on an individual customer basis. Averages hide meaningful information. The information extremes or "skew" is your friend.

Could you benefit from having a strategic business coach?  Contact me to discuss why having one of our coaches who is an experienced CEO / business owner could help you be a better leader and could make a world of difference in your company's results.  

Monday, May 7, 2018

Attributes of a Lifestyle Business or an Equity Value Business?




[Editor's Note: In the last Issues for Growth, "Which do you have - a Lifestyle Business or an Equity Value Business" we outlined the major differences between a lifestyle business and an equity value business and why it was important to be clear about the "purpose" or intent of your business because the way a business owners  approaches building a business must be very different depending on how you will define success. A number of you who have heard me speak about this issue asked me to publish the matrix of attributes comparing a lifestyle vs equity value business. So, here it is below. I hope you find it helpful.           - DPM]
 


Lifestyle Vs Equity Value Attributes Matrix 
Attribute
Lifestyle
Equity Value
Focus
Short-term Lifestyle; Run for Owner's compensation
Long-term Equity Value; sacrifice short -term comp
Pace
Owner's pace
Dictated by desired outcome
Management style
Command & Control; Centralized
Decentralized; individual decision-making
Owner Management
Can tend to be viewed as inconsistent, capricious and changing
Consistent with overall strategy and core values
Expense Control/ Spending decisions
Tightly controlled at top
Managed through approved dept budgets and policies
Outside Capital
Debt; Investors not interested; Growth may be restricted due to availability of capital
Equity investors
Empowerment
Limited; Loyalty Rewarded; Small circle of trust
Expansive; Performance rewarded; Systems to enhance empowerment
Objectives
May change at owner whim
Clearly outlined; transparent
Employee Equity
No
Yes; equity awarded
Career Development
Limited upside
Significant upside
Employee Capability
"Steady Eddies" Thrive here
High performers thrive here
Sale of Business
Usually only to Employees or Family
To third-party Buyers (Strategic or Financial)

Monday, April 16, 2018

Which Do You Have - a Lifestyle Business or an Equity Value Business? It's Important to Know the Difference


Speaking to a group of business owners about defining their business vision, I suggested that they be clear about whether they want an "equity value business" or a "lifestyle business", because the way they approach building a business must be very different depending on how they will define success.

The Lifestyle Business.
The term "lifestyle entrepreneur" was coined in 1987 by William Wetzel, a director emeritus of the Center for Venture Research at the University of New Hampshire. Mr. Wetzel was using it then to describe ventures unlikely to generate economic returns robust enough to interest outside investors. In financial jargon, "there's no upside potential for creating wealth," he explains.

 "Lifestyle ventures are usually ventures that are run by people who like being their own bosses," Wetzel says. "But they're in it for the income as well. Indeed, lifestyle entrepreneurs offer a different...view of success than those who are mainly focused on longer-term wealth accumulation.
Lifestyle businesses are businesses that are set up and run by their founders primarily with the aim of sustaining a particular level of income and little more; or to provide a foundation from which to enjoy a particular lifestyle. Some types of enterprises are more accessible than others to the would-be lifestyle business person. Those requiring extensive capital are difficult to launch and sustain on a lifestyle basis; others such as small "creative" businesses are more practical for sole practitioners or small groups such as husband-and-wife teams.
Lifestyle businesses typically have limited scalability and potential for growth. In conventional business terms, lifestyle businesses typically have limited scalability and potential for growth because such growth would impair the lifestyle for which their owner-managers set them up. However, a lifestyle business can and do win awards and provide satisfaction to its owners and customers. These are firms that depend heavily on founder skills, personality, energy, and contacts. Often their founders create them to exercise personal talent or skills, achieve a flexible schedule, work with other family members, remain in a desired geographic area, or simply to express themselves. But without the founder's deep personal involvement, such businesses are likely to, well, founder. Professional investors therefore rarely get involved with lifestyle businesses. A lifestyle business is also one that can allow the owner to call his/her own shots and to move at his/her own pace. It's a business that fits his/her current way of living rather than dictating how things ought to be done. For millions of people, these sorts of small ventures are an excellent way to "do what you love."

The Equity or Value Business.
Equity can be defined as: A company's assets, less its liabilities, which are the property of the owner or shareholders.  Popularly, equities are stocks and shares which do not pay interest at fixed rates but pay dividends based on the company's performance. The value of equities tends to rise over the long term, but in the short term they are a risk investment because prices can fall as well as rise.

An equity or value business is one where the owner intends to build real assets with a grow-able, tangible value that can be bought and sold - either as shares or the entire business. Success would be defined as the increase in value of the business over time. These businesses by definition will be built to succeed without the presence of the owner(s). In many cases, current lifestyle of the founder/owner is sacrificed in order to build significant long term value. In equity value businesses, owners focus more on building value as seen by potential buyers: sustained improvements in revenue/EBITDA, strong management team that can operate and grow the business without the owner's constant involvement,
By contrast, a lifestyle business is one where the entrepreneur seeks to generate an "adequate" income while living where s/he wants, doing what s/he loves, or having the flexibility to be around when the kids or grandkids come home from school or take long weekends in the winter to go skiing. Success would be defined as an increase in satisfaction with one's life over time.

It's imperative to decide which one you are.
These are very different scenarios. "Equity value or lifestyle" is one of those fundamental decisions you should make early in your company's history. If you're contemplating going into business with a partner, determine if you both would answer the same way. So why is it important to decide? Businesses that do not have a clear understanding of the type of business they want - and are prepared to be suffer inferior returns. Going down a path that straddles both lifestyle and equity value camps is sure to generate both lower current cash (compensation for the owners) as well as lower growth and value potential (lower equity value).

Consider one company with an innovative product in the education products space. The founder had a stated goal of building a value business. However, actions demonstrated to key employees and managers that the true motives of the founder were to facilitate the founder's lifestyle. A confused culture prevailed. Top employees and managers interested in growth left the company, leaving a cadre of lower performers, interested in maintaining the status quo. The company growth and profitability lagged and the company ceded its leadership position to more aggressive competitors. In the end this company accomplished neither growth in value nor an exceptional lifestyle for the owners.
Be honest with yourself. Be honest with yourself about your appetite for risk, your need for autonomy, your desire for current compensation. In the end, neither is good or bad. It's just, which one is for you and your business?

Next Issue: The Attributes of the Lifestyle business vs. the Equity Value business.
What are your thoughts? Share your reactions.

Monday, March 26, 2018

It's Not What Keeps You Up at Night.... But What Gets You Up in the Morning?

[Editor's Note: When my alarm goes off at 4:00am, I am usually up already, getting coffee, and bounding into the opportunities of the day. That's me... and while many people may think I am a little strange to be up at 4:00am, I can't wait to get started on each day. I came across this blog post from Sally Helgesen recently and it made me think that in this age of talent shortage, we need to be spending more time on what engages and motivates people - the positives. I hope you find this useful. -dpm]
It's Not What Keeps You Up at Night.... But What Gets You Up in the Morning?
What keeps you up at night? It's a question we've heard posed in nearly every panel and senior leader interview conducted in recent years, and as a result, it has become tiresome and rote. But I believe the effect of this query is more pernicious than simply boring - stay awake long enough to think it through, and you'll recognize its essentially negative nature. The question assumes that leaders are in the habit - indeed, that they have a responsibility - to let worry pervade their every hour, even those precious few required to refresh, balance, and sustain human effort.


That's why it was bracing to hear the chief economist of a global bank describe how his CEO responded to this question at a recent meeting of senior employees. "I'm sick of that question," the CEO had said. "Besides, it misses the point. More important is: What makes me leap out of bed in the morning?"
The CEO then told his listeners that "the terror of missing an opportunity" impelled him to get up every day. Within 24 hours, the bank's shiny new headquarters became known throughout the company as "the tower of terror." That's hardly the most positive vision. But if we focus on the invocation of opportunity rather than terror, we'll recognize that the CEO made an important point: It is vastly more productive to spring out of bed eager to spot new opportunities than it is to greet the day in a defensive crouch brought on by post-midnight agony fests. And it is a far more powerful way to lead an organization.
In other words: In an economy in which the harnessing of human knowledge offers the chief - and perhaps only - competitive advantage, the need to engage human talent has become paramount. And just as leaders on the lookout for opportunity can build and stimulate engagement, they also can undermine engagement by exuding negative energy.

If you understand what motivates people to get out of bed, you understand what engages them.Beverly Kaye, founder of Career Systems International, an engagement and development consultancy, is coauthor of the engagement classic Love 'Em or Lose 'Em: Getting Good People to Stay, now in its fifth edition (Berrett-Koehler, 2014). She has been examining the sources and advocating for the importance of employee engagement longer than anyone I know. "One of the first questions we asked people when doing our original research on engagement in the 1990s was what about their work motivated them to get out of bed in the morning," she told me. "If you understand that, you can understand what engages people."
People want a few basic things in their work, Kaye pointed out: "They want to feel valued, they want to be able to use their skill sets, and they want to be challenged by new ways to exercise and build those skills." If jobs don't give people the opportunity to fulfill these basic needs, many employees will leave - and the best are often the first to go. "And those who stay will often check out mentally and simply disengage, which from an organizational point is probably worse," she said. If jobs don't give people the opportunity to fulfill these basic needs, many employees will leave - and the best are often the first to go.
 
Leaders who are optimistic inspire confidence throughout the organization. Over the years, Kaye and her researchers have also asked thousands of people why they left their organizations. "What we hear usually comes down to some variation on their not being able to see any opportunities in their job," she said, which is why a focus on opportunities is critical in a leader. "People's experience at work is determined by their manager, and the experience of managers is determined by those who manage them, going all the way up to senior leaders....Leaders who are optimistic about what their people can accomplish, and see challenge through the lens of opportunity, inspire confidence throughout the organization." Optimism cascades down.
By contrast, leaders who worry excessively - the up-all-night types - can set a cautious or even frightened tone that spreads discouragement. In Kaye's experience, "worried leaders tend to fail their people in one of two ways. They may be distracted and overlook signals people send about what they are capable of. Or they micromanage, either because they don't trust their people or as a way of managing their own anxiety." Both approaches inhibit morale and make it impossible to build a culture of engagement.

The CEO needs to prepare the company for the future, which is all about seeing the opportunities in the larger picture.
It's interesting to note that the CEO who pushed back on the original question - "What keeps you up?" - had been chief risk assessment officer at another large financial institution. A former member of his executive team who heard about the pushback observed that the answer showed how much the CEO had grown as a leader. Worrying about what could happen, Kaye observed, is practically a job description for risk managers. "If you don't have a few sleepless nights, you may not be doing your job," she said. "But a CEO has a different brief. He or she needs to prepare the company for the future, which is all about seeing the opportunities in the larger picture."
Jim Kouzes and Barry Posner, my gurus in all things leadership, note in their classic work, The Leadership Challenge: How to Make Extraordinary Things Happen in Organizations (Wiley, 1987), that successful leaders always "challenge the process." That is, they look for opportunities to go beyond the status quo and innovative ways to improve the organization. Kouzes and Posner are clear that doing so always requires some degree of experiment and risk, as well as a willingness to accept the consequences when a risk does not pan out.
In a highly uncertain environment, that's a pretty good prescription for what most of us can do. And recognizing it might bring us to a renewed recognition that wakeful worry does not a good leader make.
   
What are your thoughts? Share your reactions.