Thoughts from Dave Mead and discussion about issues and concerns for Small and Mid-size Businesses. Some discussion topics will include strategic planning and execution, improving profitability and cash flow, maximizing value for exit.
At a recent ACG Denver (www.acg.org/denver) luncheon, Chris Carrington, CEO of Alpine Access Corporation spoke about Alpine Access’ eleven year journey to cross the chasm and achieve significant adoption.
Alpine Access provides 100% virtual call center services for 24 x 7 x 365 outsourced customer care for Fortune 1000 organizations. They handle inbound calls for customer service, sales, tech support, and collections with 2,800 employees working from home in over 1,100 cities across the country.
While Alpine has emerged as a successful company today, it has been a long journey from 1998 to date. Mr. Carrington used Geoffrey Moore’s 1991 book, “Crossing the Chasm,” to describe the sometimes arduous and time-consuming process of gaining widespread adoption of a truly disruptive innovation. He provided his top ten lessons learned about moving from concept to adoption to the mainstream market. While the book, “Crossing the Chasm” is now 18 years old, it remains the bible for adoption of new concepts, whether they are new technologies, new business models, or other disruptive innovations. Our thanks to Chris Carrington for allowing us to share this with you. –DPM
The Top Ten:
#10. However much capital you think you will need, quadruple it
- The biggest mistake entrepreneurs make is not raising enough money
# 9. However much time you think you will need, double it
- See #10
# 8. Even the best business plans cannot account for market variables outside your control
- See # 10…again
# 7. Don’t underestimate the talent needed to cross the chasm
- You guessed it…see #10 again
# 6. There is no one way to cross the chasm…be prepared to change course
- See all of the above
# 5. No matter how different your start-up is, all successful companies have done what you are trying to do
- Read and internalize the blueprints of success
# 4. Chase really large markets
- Big fish, little pond…or little fish in a much bigger pond?
# 3. Differentiate yourself from your competitors
- Redefine the pond
# 2. Don’t underestimate the importance of informed intuition and gut feel
- Planning only gets you so far…much of success is being in the right place at the right time for when opportunity presents itself
# 1. Celebrate the wins
- Market traction is encouraging for your employees, your investors, and your clients
Is it time for your company to retool the offensive side of your business?
What steps are you taking? What is working for you? What is not working? Let us know your thoughts?
At a recent meeting several owners of mid-size businesses commented that they didn't expect to do anything significantly different "until the economy comes back." My response was, "Can you realistically wait that long?"
In today's Wall Street Journal online, the WSJ released the latest survey of 48 economists.("Survey Shows Rocky Road to Economic Recovery" Wall Street Journal, Thursday October 8, 2009). To read the complete article click here. It could be a long L or a very flat U. It could take until 2014-15 before we see 5% unemployment. The 48 economists expect the U.S. economy to "bounce back from four quarters of contraction with 3.1% growth in gross domestic product at a seasonally adjusted annual rate in the just-ended third quarter. Expansion is seen continuing through the first half of 2010, though at a much slower rate. But the massive downturn has left an open wound in the labor market that will take years to heal." On average, the economists don't expect unemployment to fall under 6% until 2013 and it could take until 2014-15 before we see a 5% handle on unemployment again.
In the last survey, the consensus among economists was that the output gap would take anywhere from 4- 6 years to close. Again, that is 2013-2015 before we see a return to more normal growth.Can businesses afford to remain defensive for five years?
Two business owners decided it was time to play offense. At a seminar at Invesco Field in Denver, last Friday, two business owners spoke about the steps they took during the aftermath of 9/11 and the 2001-2 recession. They specifically talked about taking all of the necessary defensive steps, but said that there came a time in 2002-3 when it was "time to play offense." One company acquired and integrated a weak competitor and became the dominant competitor in its geographical markets. The other had very well-orchestrated strategic meetings with the most senior executives of its most profitable top 19 customers to identify new ways they could meet the needs of these customers - even though the current demand was low. This company then invested in new equipment and processes to meet these new requirements. Business models also changed. Both companies discussed how the recession was the ideal time to make these changes since business was slow and management had the time to focus on making these changes.
"We were ready and business really took off." When the economy finally rebounded, these two companies grew very rapidly - much faster than the competitors. The competitors were still doing business in the same way as they had pre-recession. But the game had changed. Over the next several years, one company enjoyed a doubling of revenue and a 15X improvement in EBITDA; the other company more than tripled revenues and returned to much above industry profitability levels.Both company owners subsequently sold their businesses at the height of the recovery.
While both companies credited good sound strategic planning, solid execution by upgraded management, they offered that the most significant difference was the commitment to play offense while the competition remained "hunkered down."
If you would like to see some of the slide presentation from this seminar, please email me.
Is it time for your company to retool the offensive side of your business? What steps are you taking? As always, we welcome your comments here or you can email me at meaddp@meadconsultinggroup.com.
ACG Denver Corporate Executive Series Breakfast - September 22, 2009
Panel participants included Anthony Carroll, CAO, Vicorp Restaurants (Village Inn and Bakers Square restaurants); J.D. Johnson, President, Norgren Americas; John Zimmerman, CFO, Tomkins plc.; The panel was moderated by David Mead, President of The Mead Consulting Group.
The panelists shared a great deal of information on specific initiatives to improve financial results during the recession, but there were several overriding strategies that each company employed:
1.) Move quickly and decisively Identify issues in your business and markets and initiate changes quickly. Don’t get caught up in gathering and analyzing data, but rather make changes once trends start to appear. Those companies that react quickly in difficult situations (economy-driven or self-inflicted situations) are those that will have the best chance of emerging quickly and healthy.
Moving quickly means there may be mistakes made, but most can be recovered from as long they are not catastrophic mistakes. A business that is not making mistakes is one that is not moving quickly enough and will most likely be left behind.
2.) Communicate the situation to your employees Provide your employees a real understanding of the situation and what the goal of the company needs to be in the recovery. Your employees are the most knowledgeable about the detail workings of your business, and they are your best resource in resolving problems.
One company solicited input from the employees on how to reduce payroll costs. The employees were briefed on the situation and asked for their recommendation on headcount reductions, reduced work weeks, or reduction in salary. The company ultimately had to use a couple of the options, but the employee base was appraised of the decision and appreciated the opportunity to be a part of the decision process.
3.) Short interval management During difficult times it is necessary to have as transparent an organization as possible. The reporting of key metrics becomes critical and each had reporting stepped up drastically. Once company described the increase in their business as “reporting that was done yearly was now monthly, monthly reporting was now weekly, weekly reporting was daily, and daily reporting was many times each day.”
Focus your efforts on the important metrics of your business. It may not be possible to increase all reporting, but those that are drivers for your company need to be reviewed more frequently and by all management that can impact the results.
4.) Communicate to your key customers Your key customers need to be a part of your communication strategy. The communication needs to be more than just a letter from the president. Your key customers deserve face to face meetings to learn of your progress and in times of economic difficulty how you can partner with them to create a stronger relationship.
5.) Initiate revenue enhancement programs Even in a recession there are ways to increase revenue. Cost containment is a given, but not a cure-all in a poor economy. Companies that focus solely on cost reductions will lag their competitors and emerge from a recession a weaker company. The companies shared ways that they adopted to quickly shift resources away from divisions or departments serving lagging industries and markets to those that offered current opportunities or great potential.
All the companies on the panel discussed price increases and promotions. Each had their own way of increasing sales, based on their specific industry. Norgren Americas had a strategy of discussing price increases well in advance to condition their customers prior to the increase. Tomkins took advantage of the downturn to exit unprofitable businesses and focus their marketing and sales efforts on industries and businesses with growth potential. Tomkins also used commodity price increases to explain the rationale for pricing moves. Vicorp Restaurants refused to play in their industry’s love of discount coupons, citing the long-term negative effect of conditioning customers to shop based on coupons.
30 Ways to Increase Prices. J.D. Johnson of Norgren cited that he solicited from all corners of the company all of the ways that the company could employ to effect an increase in realized price. These included the traditional price increase, but also the nontraditional such as eliminating free freight, bundling, etc. The company then developed a mechanism for employees across the company to exchange and share that information.
6. Never waste the opportunity of a good downturn Each of the companies took steps to trim unnecessary expenses, exit unprofitable product lines or markets, close problem manufacturing plants or stores, jettison underperforming employees, etc. In many cases, these were actions that were difficult to take during prosperous times, but the necessity of the downturn made these actions, if not more palatable, certainly more possible. The actions improved productivity, profitability, and health of the businesses and have positioned each of these companies for the future.
What is working for you? What is not working? Let us know your thoughts. Share your experiences.
Many company CEOs and CFOs today spend a good deal of time working the banking environment. Most are frustrated by the current tight credit situation. Many of our client companies are still performing at very good levels. Some are interested in taking advantage of acquisition opportunities, other growth plans with new products and new markets. Some are looking for the opportunity to hedge the risk and perhaps take a few chips off the table. Other have good performing companies, but have issues with their balance sheet.
I have been surprised at how few business owners, CEOs and CFOs are aware of MINORITY RECAPS as a potential means for growth capital, taking a few chips off the table, and possibly providing for balance sheet stabilization. In light of the current credit markets, a more challenging market for company sales, etc. we recommend consideration of minority reaps.
Minority recapitalizations (Minority Recaps) - Owners of mid-market and family-owned companies can sell less than 50 percent of their shares at minimal, or no, minority discount and still retain control.
Owners of mid-market and family-owned companies can sell less than 50 percent of their shares at minimal, or no, minority discount and still retain control; they can receive cash for their shares; they can use debt, as well as equity, to enhance returns; they can keep a significant equity tranche for a second exit – when market conditions might again be peaking; and they can pursue an aggressive and ongoing business plan designed to stimulate organic growth and financing acquisitions. In a challenging economic environment, this allows private company owners to lower risk by lowering the personal financial concentration they have in their business through diversification.
Common Myths
A common myth is that there is no capital available. The truth is that private equity firms have a tremendous amount of capital sitting on the sidelines waiting for the right opportunities.
Another common myth is that all private equity firms want control. While that may have been true ten years ago, in today’s environment, many PE firms are enthusiastic about teaming up with management to grow good companies with less than a controlling interest.
Minority recaps are not an appropriate alternative for everyone.
The company needs to have the following characteristics:
·Good operating performance (cash flow and revenue growth
·Strong management team
·Strategic Growth Plan (tangible opportunities for growth)
For those companies that meet these parameters, it might be just the ticket.
Second bite of the apple can be better and sweeter than the first.
For those companies that sell a minority stake with opportunities to grow, the results can be compelling. In many cases, partnering with the right private equity firm can provide growth that is many times higher than the company could have achieved without outside capital. When the company is ready to sell in an additional five years, perhaps, the owner can reap significantly higher returns.
Example:Five years ago a client of ours was doing $26 M in revenue with good margins and cash flow. The owner wanted to expand beyond the region into other markets with new products, but lacked the capital and financial expertise. We helped the company develop a strategic growth and execution plan and shored up some weaknesses to present the company in its best light. We assisted the company in finding experienced, knowledgeable resources to help. The company sold 35% interest to a private equity firm. The owner was able to take a few million of his ships off the table (his family was very happy that his exposure was lowered) and still had significant capital to expand. The private equity firm assisted with introductions, and recommended the addition of a terrific CFO and a strong VP of Operations. The company last year recorded over $130M in revenue. That second bite 65% share was worth a lot more than it was five years ago. The owner had this to say: “I had heard terrible things about private equity. But these guys really became our partners and helped us become a better company. Thanks to Mead Consulting for helping us get it done with the right team.”
Market Challenges.
The current market offers some interesting challenges. But some companies will be able to navigate these waters and put themselves in a lasting competitive position. Think about how your company could gain with the capital to acquire and grow during a period when everyone else is still in the bunker with their heads down. One caution – before embarking on this path, seek help from those professionals with experience working with mid-size companies in your position. If you would like more information on minority recaps please contact me.
