CEO Tactics Blog

Recently we’ve had a couple of clients ask us if they should have an advisory board and, if so, how they should go about building it.  First, we think all businesses should have an advisory board.  Perspective and experience on a wide variety of issues is an important commodity for a business owner to have available.

Often times, within our companies, we have accepted common views on topics.  As a result we are not able to generate enough perspective to accurately assess opportunities and problems.  Outside perspective is critical so that we don’t fall victim to group-think conformity and uncritical acceptance of ideas and conclusions.

Advisory boards also bring additional business knowledge and expertise to the table.  Verne Harnish of Gazelles has also written about Advisory Boards, or Councils, “The three most important pages ever written for business leaders are pages 114 – 116 in Jim Collins’ landmark book Good to Great. It’s a bold statement, but I’ve seen the transformational impact on leaders and their growth companies when the concept on these pages is implemented.”

The key, as in building a strong company, is getting the right people to serve on your advisory board.  Look for people who are not afraid to speak their mind when they disagree with something.  The last thing we want are folks who agree with almost everything and anything.  Those folks won’t bring valuable perspective.

Adding some people who don’t know the industry can be valuable because they don’t just accept the “norms” without question.  Look for specific skills like IT, HR, Finance, Marketing, etc.  Have a written and agreed understanding of what is expected of them,  such as being prepared for quarterly half day meetings and committing to making at least three a year.

Be willing to pay them an appropriate stipend for their meeting and prep time.  Consider what a senior level person would make and pay accordingly.  When you pay them well you can hold them accountable, too.  Finally, run all meetings with an agenda sent out at least a week before the meeting.  To get the most out of your advisory board, you must be prepared and model the behaviors you expect from them.

Building an Advisory Board is similar to building a management team.  It takes time, some trial, error, and corrections to get it right.  At the end of the day it is an extremely important part of any successful business.

It can be said the family businesses serve as the brains behind innovation, the heart behind local philanthropy, and the nerve system of our entire free enterprise system.  Over 90% of all US firms are family owned.  They employ 62% of the country’s work force and create 78% of the new jobs.  Furthermore, they contribute some 64% of our total GDP.

A recent University of Connecticut study showed that 79% of family owned businesses incorporate socially responsible practices into their business.  And 80% of them emphasize family or core values in the operation of their firms.  They are less likely to lay people off when times are bad, looking instead for other ways to keep the “family” together such as reduced work hours, etc.

We, too, suggest that companies that have strong core values have an advantage in the market place.   As Jim Collins in his Harvard Business Review article “Building Your Company’s Vision” states, “Core values are the essential and enduring tenets of an organization.  A small set of timeless guiding principles, core values require no external justification; they have intrinsic value and importance to those inside the organization.”

Family businesses often grasp this concept well.  When people are hired who share the core values of the business, its culture is strengthened.  When people are hired for experience only, businesses can run into value conflicts.  Keeping US family businesses at the foundation of our economy requires a defined set of core values.

Many of us in the Northeast have taken a short respite to enjoy the lovely summer weather.  We’re refreshed and ready to get back to the work of creating jobs by satisfying customers.  Hopefully our employees have also had the opportunity to re-energize too.  When I ran a business in France the month of August was a non event for our business.  Our employees and most of our customers were gone for the month to be with family and enjoy the nice weather.

As an American that was hard to understand at first.  Then it dawned on me that we all need to get our batteries recharged to keep sharp and get what needs to be done, done timely and with vigor.  As boss what is your attitude toward employee vacation and rejuvenation?  Do you embrace it as something good for the employee, the business, and of course the customer?  Or do you look at it as a necessary evil?

I would submit that companies that truly embrace employee time off have happier, more productive employees on the whole than those who don’t.  That no doubt translates into better served and satisfied customers.  All that said hopefully you and your company is rested and ready to vault into the fall season and grow your business.  At CEO Tactics we work with business owners and CEO to help them improve performance, profits and personal satisfaction.  If us a call for a no obligation discussion to see if our services might help you and your company reach the next level.  Summer’s over, it’s time to get back to work.  Work hard and have fun!

VISION – A DREAM WITH A PLAN – Most people don’t have visions, they have dreams.  The Gazelles one-page planning document guides you to answer 7 simple questions around your dream – Who, What, When, Where, How, Why and, the always difficult, “Should we or Shouldn’t we?”  You’ll see these anchor questions at the top of each column of the one-page planning document and bolded below to provide you a verbal and visual clue to match the “how to” sections with the appropriate columns on the form.
TWO OVERARCHING IDEAS are Alignment and Simplicity.  The one-page planning document is designed to encourage simplicity (there’s not a lot of space to write, so you must be concise and focused) and alignment (think of the document as a crossword puzzle, where figuratively“3 down” needs to align with “4 across.”).
FOUR KEY DECISIONS – Essentially the “bottom lines” of the form:

•    Getting the Right People (aligned with the Core Values and Purpose)
•    Long Term Goal – BHAG
•    Strategy – Target Market, Brand Promises
•    Short Term Focus – Critical Number(s) and one year goals

If you get these decisions right, everything else falls into place much easier.  And you’ll likely improve your industry standing, have higher average industry profitability, have more cash, and will grow revenues above the industry average.  In addition, customers and employees will be attracted to your business.

In our next post we will discuss the some ideas in how to prepare yourself and your team to begin the one page strategic planning process.

In our first two blog posts in this series we discussed preparing a list of potential acquirers and a couple of strategies to contact them.  In this post we will discuss milestones and some of the typical documents you may encounter in the process.

The first sale milestone is arriving at a memo of understanding or MOU.  The MOU is a document describing a bilateral or multilateral agreement between parties.  In the sales process it usually indicates the desire to work out the preliminary purchase and sales issues to allow both parties to sign a letter of intent or LOI.

An MOU is often used in cases where parties do not yet want to imply a legal commitment.  In essence it is a more formal alternative to a gentlemen’s agreement.  The MOU process allows you to proceed with several companies at the same time, keeping more options open.
The next step is more formal, the signing of a letter of intent or LOI.  The LOI is a document that outlines the terms and conditions of an agreement between two parties before the agreement is finalized.  Such agreements may be Asset Purchase Agreements, Stock Purchase Agreements, Joint-Venture Agreements etc., basically any agreement which aims at closing a financial deal.
LOIs resemble written contracts, but are usually not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as non-disclosure agreements, a covenant to negotiate in good faith, or a “no-shop” provision promising exclusive rights to negotiate. The purposes of an LOI are to 1) clarify the key points of a complex transaction for the convenience of the parties, 2) declare officially that the parties are currently negotiating, as in a merger, sale or JV, and 3) provide safeguards in case a deal collapses during negotiation.
Some time before the LOI is signed, the selling company should perform their own due diligence on their business with the help of a trusted advisor.  As the business owner, you should know where the potential issues are.  First, you should look to fix as many as possible.  Second, you should disclose the remainder to the potential buyer.  Buyers use due diligence issues to negotiate down the price of the business.  Disclosing them at the LOI level takes that card out of their hand.   Some owners feel that some issues will go undetected.  That, however, seldom happens with a savvy buyer.

The final steps in the process are the negotiations and closing.  There are books written on the negotiation process itself.  Suffice it to say that if the up front work is done well, uncovering the value your buyer perceives, the internal due diligence and negotiating the LOI, then the final negotiations should be much easier.   For more information and insights on selling your business, just complete the form of the right sidebar to download our e*book Exit Planning: The Guide for Business Owners.

In our last post we discuss how to develop a target list of potential acquirers.  In this blog post we will discuss the next steps in the sales progression.

The two foremost ways to proceed with sales process are the direct and indirect methods.  In the direct method the seller and trusted advisor put together a prospectus on the company.  This document will discuss the selling company’s market, the overall health of that market and it’s growth prospects, where the selling company adds value to customers, its technology/services.  There will be charts on market and company growth, broad narrative on opportunities, high level financials and the general location of the company, i.e. New England or Northeast.

Potential buyers are contacted by the trusted advisor to see if they would have an interest in looking at this generic type opportunity as the company is not mentioned at this point.  If so, they are sent a copy of the prospectus.

The indirect method involves contacting the same group to see if there are areas both your company and theirs can collaborate profitably.  This can be on a particular project, to private labeling each others products, to forming a joint venture.   These discussions give you the opportunity to get to know the other players in the industry better and assess the value that can be created from a sale.

The three main upsides of the indirect approach are 1) you get to know the other players in the industry on a more personal basis, 2) you get a better view of what is going on in your industry, and 3) the word, or rumor, about your company being for sale doesn’t get out into the marketplace.

If there is a downside with this indirect approach, it is that it takes much more of the owner’s time and personal involvement.

In our final post on the process of selling your business we will discuss some of the documents and milestones you will encounter.

We will assume that you have completed the preliminary steps and thoroughly prepared your business for sale.  Your balance sheet is in good shape, your market share and profits are growing, and your team is solid and firing on all cylinders.  It’s now time to consider the selling process.

After the vital preliminaries above, the first step is to prepare a list of potential buyers.  These can include companies in and around your industry.  They can also include family members or the management team.  The majority of sales are to third parties, so that will be the focus of the remainder of this blog.  The other avenues follow similar paths.

When preparing the list, do so without judgment.  List all the competitors you can think of including the indirect customers with complementary products.  List all of your big vendors and customers then look for the newer ones that are growing or have a special niche.  In this part of the process we are looking to be as thorough as possible to avoid leaving any potentially good prospects off the list.

Once you’ve gone through this process, divide your list into A, B and C players.  Companies in the A group would be the most likely buyers because of what you know about them.  Companies in the B group are less likely, but potentials, while the C group are the long shots.

Now the heavy lifting begins.  You and your advisors review the companies in the A group and analyze for 1) financial strength, 2) management team capabilities, 3) market and product trends and 4) reputation.  Next you record where your company would bring value to the business.  Uncovering this value is what drives the sales process.

Often times the owner has difficulty being objective about the value their company brings to potential buyers.  It is critical that value is accurate, neither significantly under or overstated.  Both the B and C companies are kept on the radar screen for major changes in their status, i.e. a B company starts buying up some of your smaller competitors, etc.

At this point some sellers go through the process of calculating what value their company would bring to each “A” company.  This step includes assumptions on additional channels and market share, geography coverage, cross selling opportunities, economies of scale, complementary technology and/or services, etc.  This gives the seller some idea who the best targets will be and how to position their company in the sales process.  However, it can not calculate some important intangibles such as desire, risk tolerance and ego.

The seller needs to prepare a credible forecast for the next several years that shows reasonable growth rates.  It will be important to hit the near term part of the forecast as that will be under scrutiny during the LOI and negotiation process up to closing.  Shortfalls in that period will readily translate into reductions in price.

In our next blog post we will discuss the two main avenues to take in contacting potential acquirers for your business.

The CEO Growth Forum will begin this Friday, 16 April to help CEOs achieve business and professional growth through the use of Gazelles four decisions driving growth:  People, Strategy, Execution and Cash.  The group will also bring more  CEO perspective and focus in a professionally facilitated and confidential environment.

This program is for select CEOs who have a longer term business vision that includes at least one of the following:

-    taking their business to the next level
-    diversifying products/services and/or markets
-    ongoing development of the management team
-    succession planning
-    developing potential exit strategies

Purpose:

To bring near term value to each participant by providing a program to support them in:

-    Identifying appropriate strategies to grow their companies profitably
-    Strategy execution
-    Developing and effectively using resources
-    Improving professional / personal effectiveness
-    Focus on the Gazelles four decision for growth: People, Strategy, Execution and Cash

Membership Requirements:

1.    Significant experience and accomplishments. A willingness to contribute in group meetings.
2.    A robust management team in place
3.    Desire to grow your business, and willingness to commit to metrics.
4.    Current or near term profitability.
5.    Commitment to meeting attendance and preparation.
6.    Commitment to confidentiality regarding all member’s opportunities, plans and issues.
7.    Willingness to be held accountable by peers.

Benefits of Participation:

-       Learn to use the Gazelles One Page Strategic Plan
-    Specific time and structure to work “on the business”
-    Perspective and feedback from a diverse group of peers who face similar issues
-    Improved confidence in making major business decisions
-    Sharing of best business practices
-    Improved network of CEOs
-    Opportunity to grow professionally

For more information contact Dr. Donald N. Sweet at 603-766-4926 or Dr. Brad Lebo at 603-502-9955.

How do you look at your business?  Is it your job, or is it one of your investments?  We treat them both differently.  Jobs are something that we work at to pay the bills, take a vacation, pay for college, etc.  Investments are something that we grow for the future.  Usually, we have someone else manage our investments.  Why is that?  Probably because the professional money managers are better at it than we will ever be.

Does that same logic apply to our businesses?  Certainly some owners have hired professional managers.   The majority of us do not.  We got into our business because we saw an opportunity in an area where we had some interest or some specialized knowledge or skill.  Then we found all the other things that go along with growing a business.  Hiring employees, making sure they knew what to do.  Providing infrastructure and targets.  Connecting with customers, making sales, collecting money, paying bills, etc.  Whew.  We didn’t realize all those other aspects would take so much time.  Not only take time, but many of them weren’t very interesting and some we just weren’t good at.

Yet, in spite of all that, our business has grown.  After all, we make a darn good product or deliver a real good service and we do take excellent care of our prized customers.  Now we are at a cross road.  Our business has become our biggest asset, but it’s not a liquid asset.  Where do we go from here.

Perhaps its time to step back and take a new look at the situation.  That is hard for us to do.  We’ve been hugging the tree for so long it’s hard to see much but the bark.  Never the less, we need to find a way to get perspective.  Other business friends, a CEO group perhaps, there are a number of options.

Our problem is we’ve been running and growing this business as best we can for years now.  Although we can’t see the finish line just yet, we know it’s out there.  It is perhaps just over the next hill or two.   So our biggest asset turns out to be illiquid at the moment.  We need to find a way to move toward some sort of liquidity event.  There are options out there and we will discuss a popular one in our next post.

A colleague and I heard Russ Wilcox, President of E Ink speak today at an SBANE breakfast meeting in Waltham, MA.  Mr. Wilcox spent more than ten years bringing his company to it’s successful sale last fall to PVI for some $450 million!  During those ten years Mr. Wilcox suffered many near death corporate experiences.  Numerous times he was within a few short weeks of running out of cash.

The difficulties he experienced are not unusual to the average entrepreneur.  There are many days when we’re not sure what will come next and others when we’re not sure tomorrow will even arrive.  Through out the drive to bring his technology to market Mr. Wilcox had to choose between Scylla and Charybdis.  Like a modern day Odysseus, Mr. Wilcox made the right decisions.

The moral of his story is of course, never, never, never give up!  Keep trying  is what entrepreneurs  must continue to do.   Particularly in this current economy.    Go out and slay the business monsters that rear up their ugly heads day in and day out.

Mr. Wilcox may have had doubts, and surely had sleepless nights, but he believed in the business.  We must all do the same.  Thank you Russ for your inspiring story and the timely lesson in perseverance!