Archive for April, 2017

Sleepwalking In Business

Friday, April 28th, 2017

 

My young daughter is going through a period of arriving in our bedroom unannounced in the middle of the night, oblivious to her propensity for sleepwalking or the dangers that lie in her pathway. In almost every high-growth or mid-market business I review for investors, there are instances where the firm is consciously doing things (excessive customer needs analysis), which result in the business “landing” in unfavourable locations (slower client acquisition times), and dramatically increasing the risk for investors (cashflow). Look around your business and ask yourself a simple question, “If it was my money at stake, what would we stop doing tomorrow or do more efficiently?” Then, “why do I not bring this to my direct report and colleagues’ attention?” It is easy to blame others but great businesses are built on high levels of personal accountability at all levels that have zero to do with how much I am paid or my title.

© James Berkeley 2017. All Rights Reserved.

 

Profit In A False Sense of Security

Wednesday, April 26th, 2017

 

I am fascinated by the probable cause when owners, Boards and top management in mid-market businesses (US$10M to US$Bn), “don’t take the money” and shortly thereafter, end up with a failing or failed business. Specifically, when a serious offer is made for growth capital or even an outright sale of the business, and in the next 6-12 months after the refusal, the fortunes of the business partially or totally collapse. Nowhere is this more visible than today’s high growth private tech businesses (the infamous “unicorns”) and in an often overlooked area, service businesses with a powerful owner-operator or managing partner in a partnership structure.

The decision-making factors are consistent throughout. The business has deliberated carefully or taken an opportunistic approach to accepting external capital or key talent. What has varied is the owners’, the Board’s  and/or top management’s judgement, resilience or trust over time. Faced with changing market conditions (regulation, technological and other convergent forces), a key client “win” or “loss”, rising/declining investor or trade interest and so on, there is a discernible change. They consciously ignore other’s prudent advice that they have implicitly trusted in the past (mitigating risk). They increasingly believe that they are “impregnable” in their market position (market hype or vanity investments). They allow common sense to be distorted by inflated but unsubstantiated talk (valuations, growth prospects, barriers to entry, unique technology etc.).

Having worked with six privately-held mid-market businesses over the past 3 years around the globe, who turned down offers and subsequently, experienced very public falls from grace (legal, e-commerce, hotels, gaming, financial services), the underlying “cause” in my experience is ultimately, poor leadership. It is people, not the business that have screwed up.

For my current and prospective clients reading this, who fear my strategic advice comes with a poison in the tail, rest assured I have had a great many more winners than losers!

Yet in the immediate aftermath of a partial or total business failure, there is a rush to assume that the firm’s opportunistic or conservative approach to accepting new capital or talent is the “cause”. That is inaccurate, and here is why. There are a great many successful businesses, who have been consistent in adopting diametrically opposed approaches to accepting external capital or ownership (in insurance, AJ Gallagher vs Hub International, in hotels, Peninsula vs. Fairmont Raffles, or in the premium art business, Christie’s vs Sotheby’s). In just the same way, sticking to niche products, services or geographies or constantly, adopting a diversification approach, is rarely the “cause” of failure.

Take great care in jumping to a conclusion. Profit is to be found, as many smart long-short investors have found, in looking out for a business owner’s, the Board’s and/or top management’s increasing false sense of security, the resulting changes in their behaviour and the positive/negative impact on their business and the competition.

© James Berkeley 2017. All Rights Reserved.

 

Exclusive Invite: Private Equity International’s Operating Partners Forum

Thursday, April 13th, 2017

Intrigued by what a private equity operating partner does, the value they create and the critical issues (digital, strategic, operational) in European private equity now and the next 12 months? Here is an exclusive invitation.

I am back for a third year moderating a panel session (3/4 May, 2017 IOD London) with a great cast that includes a former CEO of one of Europe’s top-ranked private equity firms, a Cambridge-educated Austrian doing great work in infrastructure investing and an Italian transforming the fortunes of a German Family Office. If you have an iota of interest in value creation, join me at Europe’s pre-eminent event featuring 70+ operating partners and 30+ limited partners in intimate surroundings.

http://www.cvent.com/events/operating-partners-forum-europe-2017/event-summary-c2532f5d6ccc4666acd807e72568cbf0.aspx

Here is a deal, sign up using this code and receive a 15% discount off the registration fee (OPspeaker17) PLUS for the first six subscribers I am buying breakfast on Day 2. There are currently 4 seats remaining.

There is no other such gathering for the remainder of the year. If you are unable to make it but interested in receiving a quick “free” checklist of the key takeaways, drop me a note to james@elliceconsulting.com. I’ll make sure that you are on the distribution list.

© James Berkeley 2017. All Rights Reserved.