The complexity of increasing compliance, regulation and political risks with increasing globalization is demanding more and more executive time away from the sexy aspects of business growth. From the Brazil to China via the Middle East, James discusses 4 external factors that will help turn your organisation’s operating vision into results.
Archive for March, 2014
The fastest way for most advisory businesses (hedge funds, wealth management, asset management, insurance, real estate, art and so on) to dramatically increase top line revenue growth is to have their key people, seen as an “object of interest” or unparalleled expert in their field. The mere mention of their name (John Paulson, Larry Gagosian, Warren Buffett) has instant credibility, their pronouncements create an immediate following and the most attractive buyers of the firm’s products and services come banging on the door for help, such that acquisition costs are close to zero. In such cases, these individuals and their firms are able to charge above-market prices because the buyer believes their value is worth paying a premium for.
One of the confusing challenges for these firms is how they build their business around these individuals’ talents. How do they build scale, where the most attractive clients want access to that individual and are less comfortable being handed off to a subordinate without the same star quality? How do they avoid corporate bureaucracy suffocating internal decision-making and yet maintain the highest standards of governance? How do they plan for the day when that individual is no longer with the Company, by choice or design? How do they keep clients happy beyond the short-term?
For many advisory firms, there is a conscious decision to stay small, accept a small number of highly profitable clients and not dilute the effectiveness of the “star” performer(s). Indeed, many hedge funds, asset management business, art dealers, legal practices and so on are designed with those priorities to the forefront.They excel while that individual remains at the top of their game and their passion remains undimmed for the business. For some, that dissipates over time and for others it continues until the individual dies. At different points, the organisation’s customers, shareholders and employees must make a decision about their own best interests before the lights go out. Formula One Management, its’ founder, Bernie Ecclestone and its’ current shareholder base are one such example.
The starting point is
1. What is the strategic vision of the business? I am not talking about some stupid 100 year picture of the future rather where does the business want to be in the next 3-5 years and what must it accomplish to remain a significant player in its’ chosen market. For example, Formula One would probably argue it wants to be the dominant global sports brand in its’ field measured by attractiveness to sponsors, future television rights value, participation fees per event and contributions paid to each team, and its’ shareholders.
2. What is the shortest, quickest path to arrive at that set of business goals? Where does the business and its’ key people need to enhance the focus on growth and expansion? What does it need to ditch or start doing less of?
3. How can we make that happen? Where does accountability need to reside within the firm for each business goal? What behaviours and skills are required from those people seen as objects of interests or experts to accomplish the business goals? What additional experience, resources and development are required to support those individuals in their daily work and accomplish the business goals?
Many of the world’s most successful advisory businesses have grown profitably because the founder had a very clear vision of where they want to head, what their customers needed and how best to serve those needs. Those beliefs create a superglue that govern all employees’ behaviour and the expectations of customers and shareholders alike. The very best firms have a constant reinvention going on. Those people seen as objects of interests have learned to adapt and remain highly relevant and valuable.
The difficulty comes where there is a demand for significant growth, key people are drawn into greater management challenges that don’t play to their strengths, their energy and passion is sapped. Equally, transition is not something they are comfortable discussing. For they sense, the mere talk threatens their control of the things they most cherish (decision-making, clients, reputation, external perceptions etc), their control (or reduction) threatens their power and influence over their personal priorities. Yet for those whom growth and perpetuation is a priority, they must come to terms with succession and delegating responsibility. For those sitting on Boards in these advisory companies, ask yourself how that key individual(s) might speak positively of that discussion, irrespective of what you decide to do. Answering that question might increase the aptitude of those people to share their ideas in ways that you never imagined.
© James Berkeley 2014. All Rights Reserved.
In many advisory firms, economic ownership of the business rests in the hands of a few key client-facing people. Legal ownership rests with shareholders, partners or some other ownership construct. I regularly observe acquisitions, whether it is an entire advisory business, the acquisition of a new advisory team or portfolio of clients, where the overriding investment of management time and focus pre-deal, during the deal and post- the deal is on the legal ownership. Rather like the yacht dropping anchor and docking in the marina, the crew’s energy and effort goes into securing the yacht (the business) with a firm hold on the anchor and the guy ropes. That is effective so long as the yacht doesn’t break free of its’ moorings, it can withstand changes in the weather, the wind and the tide and the crew are constantly vigilant about other yacht movements near the yacht.
In certain jurisdictions (California, Middle East, China and so on), non-compete and legal remedies are largely ineffective when trying to restrain a key producer or group of individuals moving to a competitor. In Europe and in certain countries with more employer-friendly attitudes to economic ownership and upholding legal rights over intellectual property, these remedies are more effective albeit for a limited duration (0-12 months).
When these fissures in the relationship between the acquired and the acquirer happen in more liberal jurisdictions on a frequent basis and with the same companies, you have to ask the question are management asleep at the wheel or are they simply failing to apply good judgement? This week’s announcement that global insurance broker AON are suing Alliant for a second such sizeable breach in California in two years, and an increasing uptick of lawsuits in North America, Western Europe and Asia as international advisory firms within the insurance market gear up for growth and expansion reminds us that far too many firms are dependent on legal remedies.
Faced with limited legal remedies, what can and should top management do when considering acquisitions:
1. People leave bosses, not businesses. Does the direct report of the key individuals you are acquiring possess the skills and volition to successfully integrate those people into the firm? Do they have the right set of tools (technology) and support available to help the newly acquired people hit the ground running? Are their own rewards and recognition aligned with the pre-deal business goals or the new business goals for the combined team (is it clearly a “win-win” or a “win-lose” relationship)? Are managers in the acquiring business held accountable for the right behaviours, not just the results (individual performance)?
2. People leave the “acquiring” firm because the firm failed to meet or exceed their expectations. Promises are made pre-deal, which in many competitive situations are geared to a point where they are highly improbable and unrealistic. Both parties in the “deal frenzy” are so focused on the rewards (personal or corporate), they don’t spend enough time reaching conceptual agreement on the best way to produce results (“we’ll work it out when you are on board”). Most relationships fall apart not because the logic didn’t make sense rather the emotional objectives of the acquired party are left unfulfilled. If you don’t invest sufficient time building a trusting relationship and eliciting pre-deal what the personal objectives of the newly acquired individual, team or business owner is and how you can best meet them during and post-deal, don’t be surprised that an insurmountable fracture arises in your relationship a short way down the track.
3. The management team of the acquiring business must understand their own limitations. They cannot motivate the newly acquired resources, any more than they can motivate their own colleagues. It is their direct responsibility to create an environment in which those individuals, their customers and their people can foster. What they can and must do is show respect for everyone’s past accomplishments. They must judge their own self-worth and contribution on their ability to apply their own past experience into a more impressive future for the newly acquired people and business (increased productivity, unprecedented growth, happier customers, increased career opportunities, greater profit, lower attrition etc.).
The next time a prospective producer, a sales team or a business owner walks into your office, invite them to sit on a comfortable sofa, offer them a drink and remind yourself that they represent a wonderful opportunity, not a threat. Place yourself in their shoes, how can they leave the room more comfortable and excited about not just the rewards but the “journey” of realising their own personal aspirations within your firm than when they walked in an hour earlier, no matter what you ultimately decide to do together. Succeeding with that simple step, may dramatically increase your success in holding onto your most prized assets more than you ever imagined.
© James Berkeley 2014. All Rights Reserved.
Data security breaches, exchange rigging, product miss-selling scandals, illegal or unethical commissions are just some of the governance incidents that have resulted in the largest fines in business history over the past 18 months. All the compliance systems in the world in some of the most complex business organisations have failed to stem the tide. James provides a tour of the accountabilities of Boards and top management in organisations seeking to exploit healthy growth.
Franchising partnerships in Kuwait, joint ventures in Spanish real estate, global hotel marketing consortia, law firm alliances in SE Asia and correspondent reinsurance broker relationships in Bermuda, market entry takes any number of forms. Irrespective of the methodology, there is a sequence of questions that James explains must be discussed openly and honestly to establish an effective alliance, which results in dramatic, not insipid growth.
Why do first meetings with the owners of businesses you want to buy or the team or key producer you want to hire, reveal so little about them and so much about your own insecurities? If the objective is to profitably grow and expand the business, then we should first check that we are able to maintain a “winning mindset” and provide a lasting first impression. That is not difficult to achieve unless we consciously or unconsciously ignore the other party’s best interests.
Here are the distinctions I draw from my very best clients in professional service firms (insurance, legal, accounting, architectural, art, advertising and so on):
- They establish clearly defined minimum and maximum objectives before the meeting. At a minimum, a common set of beliefs, a sense of each other’s destiny and timing, why it is important personally and professionally. At a maximum, they have established trust, both parties are open about their objectives for any future collaboration, what represents progress and success, and the value derived from the collaboration and the contribution being invested by each.
- They are able to tilt the power in the conversation (astute preparation and visualisation of the conversation) with people they have never met quickly and impressively.
- They invest time in understanding their own fears and those of their colleagues before they walk in the door and they take assertive steps to prevent those biases clouding good judgement.
- They willingly provide immediate value to the other party (ideas, insights, self-disclosure, suggestions how to accelerate the conversation) that is demonstrably in the best interests of the other party, not just their own situation.
- They readily admit what they don’t know to the other party (high-level of self-esteem).
- They are accurate in identifying the other party’s comfort zone and readily able to adapt their own approaches (pace of discussion, objections expressed and self-evident fears, and suggest alternatives)
- Their language and discussion focuses on the future value they can create for the other party (results), not their “past” history or their current methodology.
- They know where they are in the conversation at all times, what key questions they will ask next to move the dialogue to where they want to go (the finishing line) and what responses demand immediate push back or even running to the exit door.
- They willingly embrace and have the means to hire third party help (facilitating meetings, resolving conflicts over objectives and alternatives, formulating strategy, independent valuations and so on), where it is reasonable and appropriate to do so without fear of others’ opinions (their own self-worth).
- They maintain a strong resolve to see the conversation through to its’ natural conclusion (prioritising time and in-person presence, garnering support from others, acting as an exemplar, overcoming -changes of direction, accepting push back and so on)
- They establish clearly defined next steps (time, date, action) for any future follow up.
The next time an acquisition target appears on your radar screen, invite them to a comfortable setting, offer them generous hospitality and remind yourself that they represent a fabulous opportunity, not a threat. Ask yourself how they might leave eulogising about a really positive experience, no matter what you decide to do together. Put yourself in their shoes. Achieving that small goal, might have a bigger impact on your business growth than you ever imagined.
© James Berkeley 2014. All Rights Reserved.
It is the considered and great touches that create excitement for the client or consumer and separate the exceptional from the dull businesses and brands. Profitable growth is about creating permanent and loyal “fans”, in much the same way pop groups such as The Beatles and their successors have sought to do for the past 50 years. Listen in to approaches that most businesses could rapidly adopt and transform the level of engagement with their customer, the market perception of their brand and the prices they could command for their product, services and relationships.
John, Paul, Ringo and George: four likely lads from Liverpool, who created with their manager, Brain Epstein, the template for entering a high growth market, the United States, fifty years ago. James draws parallels with Beatlemania to illustrate the strategies and key engagement challenges an organisation and key executives must excel at when entering a high growth market.
Many markets that businesses operate in simply don’t follow rational behavior. Consumers and clients’ behavior and spending patterns often defy the most accurate of forecasts. Faced with irrational market movements, senior executives and line managers in retail, commodities, investment management and other sectors must display rational thinking, a high-level of self esteem and outstanding decision-making skills that allow the business to navigate stormy waters. Listen and learn from the best and readily their proven approaches in your own business.