I can’t tell you how many times in my investment banking careers – the first doing Wall Street deals in the 1990s and my current serving the small and middle market with sell-side and capital-raising advisory services – I have seen companies try to get everything perfect in their own house before accessing the capital markets or pulling the trigger on a sale process, only to have the whole plan backfire when the markets correct and every potential investor runs for the exits like in a theatre on fire. The timeless capital markets maxim is that an ideal situation for a company seeking an exit or capital is when the company is perfectly positioned and there is a tailwind in the capital markets. But those times are relatively rare. The more common situations are that (1) the company is not in tip-top shape but the market tailwind is strong, and (2) the company is ideally positioned but the market is blowing a headwind. In the first situation, deals are still very doable and often at very good valuations. In the second, they aren’t, at least at anything above a fire sale price. Every good investment banker is constantly advising companies to always work on improving the situation they can control, but don’t let the lack of improvements keep them away from selling or financing – if that is what they need or want – when a market tailwind exists.
We have intimate knowledge of a situation right now that is a perfect example. A fast-growing company in highly fragmented but rapidly consolidating industry – one that was fueled by exciting, disruptive technology that in turn drove the major disruption of a number of huge, well established industry players – entertained the idea of selling about 14 months ago. Given the pace of consolidation and the high valuations accorded those companies with the best, most disruptive technology and market strategies, we advised them to immediately initiate a sale process that we estimated, based on market comparables, could produce a sales price of approximately $60MM, and possibly as high as $90MM. We advised that market frenzies in which it was immersed are infrequent and the company should hurriedly capitalize on the favorable conditions. The company and its investors, some of whom are name brand VCs and should have known better, decided to focus instead on polishing the company’s business model and execution, hoping that the company’s improved performance and an even frothier market would produce an even higher valuation. Well, you know how this story goes.
Fourteen months later, the company is now finally involved in a sale process – one that was started about 6 to 9 months after our advice was rejected. But market conditions have changed dramatically. A full-blown industry shakeout is happening, public company comparables have plummeted, and no one wants or is able to go out on a limb and pay anywhere near what the company was worth just over a year ago. Granted, the company is much stronger today from both earnings trend and technical risk standpoints, but it is irrelevant to the market. The market headwind is strong and a sale above $20MM is unlikely. In fact, sale may be impossible. If so, the company needs cash if it is going to stay independent, but raising cash will be very difficult given market conditions. In sum, the company’s future, indeed its existence, is at great risk as a result of its decision to wait and try for a nine-figure (or about a 10X multiple of investment) outcome when it easily had a $50MM (or about a 5X MOI) exit in its reach.
For a PDF of the above, click here: Pigs Get Fat, Hogs Get Slaughtered…Always and Forever.
23 Jul 2013
Are you interested in selling your company? No? How about raising capital from an outside investor? No? That’s fine. But are you operating your business as if you were interested? If you aren’t, you should. Why?
First, things can change and change rapidly. You can’t say for certain that you will not need outside capital or that you – or your heirs – will not need or want to sell. Second, if you don’t operate as if you were in the market to raise capital or sell, you are at great risk of losing your customers. Because there are competitors, both ones known to you and unknown ones lurking in the shadow, that are operating their businesses as if they were in the market. And those competitors are likely offering – or about to offer – a better product at a better price.
How do you operate as if you were courting capital? You operate to maximize the value of your enterprise. And how do you do that? Make sure you have you have your 4 Elements, 3 Disciplines, 2 Glues, and 1 High-Impact Leader in place and firing on all cylinders. Click TCA_Library_Leadership_The Golden Formula for Building Enterprise Value for The Golden Formula for Building Enterprise Value.
19 Jun 2013
The one sustainable competitive advantage that is largely untapped in American business is teamwork. When executive groups function as a team, all kinds of good results occur. Morale of the team members improves, which leads to better morale cascading down through the organization, which leads to higher levels of performance and higher retention. Innovation, the Holy Grail of business today, is enhanced greatly by teamwork. Accountability, that ever-elusive objective that the overwhelming majority of businesses struggle with, becomes much easier because the team assumes the majority of the burden of enforcement. Communication is greatly enhanced. Finally, better results are achieved. Organizational goals, which by definition are collective in nature, are far more easily achieved when pursued by collective team efforts. More revenue, higher margins, more profit, higher enterprise value, happier employees, and lower turnover.
Why, then, is executive team building not pursued by more companies. First, it’s hard to measure. Second, it’s hard to achieve. It can’t be bought. It has to be earned through courage, discipline, and emotional investment.
But the power of teamwork is indisputable. When people set aside their own individual needs for the collective good, they can accomplish what seemed impossible, and all other things in less time and at a lower cost.
Team building, though, must be done in context. The Chicago Bulls in their heyday did not learn teamwork in an executive board room. They learned it in the context of where they had to succeed – the basketball court. Similarly, executive teams can’t learn effective team work hanging from ropes or playing softball. They have to learn it in the context of their arena – the executive offices.
Our firm offers an extraordinarily powerful team building program for executive teams. It culminates in a day-and-a-half workshop where the team comes together and learns about the structure of, and begins to establish, powerful teamwork that operates very quickly to bring about a lasting competitive advantage. Give us a call at (800) 689-7941 to learn more about our program.
No surprise in the basic trend, but the severity is eye-opening. Private equity holding periods, calculated at exit year, increased from 3.4 years in 2008 to 5.8 years currently. An increase of over 70% in less than five years!
In many ways, our business environment is no less a jungle than our general existence was 5,000 years ago. In the places of dangerous beasts, treacherous terrain, disease, and enemy tribes, we have highly competitive markets, rapidly changing economies, unethical business people, and torrential downpours of complex and confusing data. In each case, the result is uncertainty, confusion, trepidation, and great overall risk.
Technology and all its accoutrements, in particular, are a major cause of our new jungle environment. Technology is not a bad thing. In fact, I happen to believe it is a very good thing. It represents a meaningful part of the human potential. But we have to recognize all of its dimensions and deal with them. We have to recognize that all these technologies have conspired to overwhelm us with increasing amounts of increasingly complex data, downloaded at faster and faster rates. As a collective practice, business leadership has simply fallen behind the pace of everything else in the world that has been accelerated and complicated by technology. Often we are unable to distinguish useful from useless data. Even if we can, we don’t have time to understand what to do with the useful before it quickly becomes useless. We’re trying to “drink out of a fire hose.” As a result, fear, stress, resistance, lapses in integrity, inability to focus, lack of personal responsibility, absence of creativity, and most importantly, a lack of positive results are the hallmarks of business leadership today.
Just as it was in the jungle 5,000 years ago, every day presents myriad risks. As a leader of a tribe back then, in the absence of the right tools to manage those risks, you would have found yourself in constant crises. And that is where we are today in all sectors – government, political, corporate, religious, social, and even the family.
In the business world, which is where I work, just look – at the mild end of the spectrum – at the number of companies that under-perform and miss their earnings estimates. Their chief executives are not able to grasp what is really going on all around them. Many err in product development and release a product that is either defective or incompatible with what the consumer wants. Many miss what is happening in the competitive landscape and learn too late that a competitor has trumped them. Look at the complete mismanagement of risk that led to the subprime mortgage disaster. Looking at the more extreme end of the spectrum, CEOs are resorting to crime. We know all about Enron, Tyco, WorldCom, Adelphia, and the many scandals relating to the back-dating of stock options. Faced with this high velocity, highly complex world – this jungle – too many CEOs lack the right tools to manage in this environment and are failing – everything from just doing a poor job to committing crimes.
So, what’s the solution? Same one used in the jungle 5,000 years ago. It’s called intuition. Intuition is a powerful tool for acquiring knowledge without the process of rational thought. What is the source of this knowledge? Simply put, the universe. It is everything you have ever experienced or known. In fact, it is everything humankind has experienced or known. Carl Jung, the famous Swiss psychiatrist, conducted extensive studies and concluded that there is a “collective unconscious” that is common to every person. This collective unconscious is essentially a library of human experience into which any of us can tap at any time.
At some point in the millions of years of human evolution, the human brain developed a capacity for intuition. This capacity is in the right side of the brain and inward-focused, whereas our rational, logical capabilities reside in the left side and are outward-focused. Until the last two centuries, we humans relied upon intuition as heavily as we relied upon our other five senses. We were “balanced-brain beings.”
During the past two hundred years, however, most people became primarily left-brain beings. As the velocity and complexity of life accelerated, we focused outward. This change was not due to a conscious choice; we were simply been overwhelmed by the external world. With very little time to ground ourselves amid the onslaught of external data, we lost confidence in intuition and came to rely disproportionately on rational thinking.
Ironically, the primary cause of intuition’s fall—technology and the resulting flood of data pouring into our left brains—is fueling its revival. We are overwhelmed with data. We are not making better decisions than we used to. We are not behaving better. We need to find an anchor in the storm—an anchor that will help us manage the data better and with less stress, an anchor that will make the data more relevant and thus help us make better decisions and behave better, an anchor that will bring us closer to reality, that will ground us and rejuvenate us. That anchor is intuition.
I think of intuitive cues as conduits for reality. They include clairsentience (i.e, feeling something in your body), clairvoyance (i.e., seeing something in your mind’s eye), clairaudience (i.e., hearing something in your head), and just simply knowing something. They are simply how we receive our “signal” of reality. There is a reality, either outside or within us, that is trying to express itself to us. Our responsibility is to ensure that the channels are open and clear so that the reality can be seen, experienced, and utilized in a positive way.
Intuition should not be used in a vacuum. At least I would never use it alone. My intuitive skills are just not advanced enough—and likely never will be—to depend upon to the exclusion of external data and logical thinking. Conversely, the savvy leader will never ignore it. At a minimum, intuition is a tool to be used in conjunction with all other input in the decision-making process. At certain times, however, intuition can be dominant, including the following:
- When relevant facts are scarce or conflicting;
- When you just can’t decide among alternatives;
- When under time pressure; and
- When dealing with human issues (e.g., hiring, firing, staffing, partnering)
Even when not dominant, though, intuition is always powerful fuel for the businessperson of today trying to make positive headway in our high velocity, highly complex existence. In my experience, the best business people are highly intuitive. This intuition enables them to be highly defined as a person, form the optimal vision for the business and organization, and inspire and engage a team to execute that vision.
And what to do if you believe you aren’t intuitive? First, change your belief. Everyone has this sixth sense. It’s just that some can access it better than others. Second, learn how to access it. Chapter Six of my book, The Source of Leadership, has an exercise to assist in the development of intuition. And then go navigate the jungle safely and successfully!
For a PDF of this article: TCA_Library_Leadership_Intuition_The Power Tool of the Business Jungle
17 Apr 2013
Once you’ve been around business a little while, you learn that cash is everything. Given that, revenue is critical. Given that, the customers that send the revenue your way are critical. They gotta love you, or your days are numbered. In our executive advisory practice, we look at a lot of things related to the customer. Here is a good start.
Simply put, the most successful leaders have an open and candid dialogue – on a daily basis – with three critical constituents: their employees, their vendors, and their customers. In my executive coaching and leadership development practice, I am still blown away by how many leaders lack both a culture and systems of communicating with each of these three groups. And then they are blown away when key employees leave or under-perform, key vendors disappoint, and key customers move on. These groups are the heart of a leader’s business and he or she has to be taking their pulses daily. No way around it.
As one who has run a number companies and engaged investment bankers to assist in raising capital, buying companies, selling companies, and strategic planning, and one who has also been an investment banker for many years of my career, I have a pretty strong opinion about what they should be delivering to their clients in exchange for the healthy fees they receive. Here it is: TCA_Library_Capital Markets_Client Bill of Rights
15 Apr 2013
The competency-based leadership model still employed by the largest companies simply doesn’t work. Here is a fuller explanation. Simply put, leadership success in today’s high velocity, highly complex environment today doesn’t turn on technical competency. It turns on leadership talent and skills.