Posts Tagged ‘investment’

Something For Nothing

Tuesday, November 20th, 2018

If you are seriously confident about the prospects of your business growth, and the impact of our potential collaboration, why do you insist on asking me for “free” help and to assume the overwhelming risk? Is it that you are “cheap”, don’t trust me, fearful of the future or broke? Those are the only viable conclusions. 

Trapped

Monday, October 22nd, 2018

There are two forms of “entrapment”, physical and virtual. “Physical”, in the sense of the car being caught up in a traffic jam with nowhere to turn on a highway or motorway. “Virtual”, in the sense of being “stuck” in a lousy investment, business or job. Too often with the latter, I meet individuals where their mind has a vice-like grip on their ability to figure out how to adapt to the prevailing conditions (de-risk, effect change, change accountabilities) or escape entirely to a safer, more positive position. The good news is they can and very often will “escape” but their refusal to seek expert help dramatically prolongs the suffering. Move on!   

Killer Language For Entrepreneurs: Intellectual Acumen

Tuesday, June 5th, 2018

“I am not here to tell you how smart I am, I am here to tell you how smart you will be in the eyes of your peers after backing my business….” Superior returns are rarely found in anything other than individuals, who are sharp, agile and fast-on-their-feet. Their intellect is manifest in an unconventional but simple business approach, which generates dramatic value and results for the investor. That sounds so simple. yet nearly every entrepreneur makes the simple complex and dilutes the impact.

© James Berkeley 2018. All Rights Reserved.

Leadership Trumps Innovation

Tuesday, April 24th, 2018

Back in 2014, HSBC triumphantly announced a dedicated pool of $200 million to fund an innovation team and direct capital to young entrepreneurial fintech businesses. It has made some small bets in the intervening years and housed 3,000 digital techies in a separate London building because in the words of then CEO-Stuart Gulliver “we have a cultural issue.” Yet these actions masquerade a more profound Board and Senior Management issue: a fierce split has persisted for over 5 years about the priority that should be given to innovation, and the probable return on the time invested.

If innovation, internal or external, is truly critical to the business or profit centre’s future, why wouldn’t it sit within individual P&L’s, and the accountability reside with the appropriate P&L leader? When large organisations persist in setting up innovation labs, accelerators and dedicated corporate venture units too often they are “divorced” from the cut and thrust of the day-to-day business. They point to an unspoken truth,  innovation isn’t really a strategic priority for certain powerful voices and/or the environment is insufficiently supportive of bold ideas or foreign bodies.  Which is it? Common sense dictates that those leadership issues must be fixed first BEFORE investing a dime on innovation initiatives.

© James Berkeley 2018. All Rights Reserved.

 

 

Capital Reality

Friday, December 15th, 2017

I just finished reading a quite brilliant book, Lifestorming by Alan Weiss and Marshall Goldsmith. Marshall reminds the reader of one of his most powerful learning points from arguably one of the smartest minds over the past century, American businessman, Peter Drucker. I smiled when I reflected upon how frequently I am asked to correct this behaviour in my own work, particularly amongst entrepreneurs and private equity investors building businesses.

An excessive amount of time is wasted

  • Trying to prove how right we are (brilliant idea, investment decision-taking) and how good we are (vanity) with ourselves and our key constituents when the real objective should be to maximise the positive difference we are able to make in the life we choose to lead, and the world we live in.
  • Trying to control events or issues where we have ceded or have zero power over the outcome.

The private equity or venture investor doesn’t have to invest. The entrepreneur doesn’t have to accept the investment. When they do accept majority investment, the entrepreneur ceases to have the ultimate decision-making power. Don’t whine or somehow think you retain superpowers, you really don’t, concentrate on making a positive difference within those constraints. If you don’t like the constraints, let it go and move on. The same applies to capricious General Partners feeling that the private equity model is underappreciated in the wider world or when power has shifted from their investee businesses to their customers or competitors.

A case in point, yesterday’s headline sale to Disney of large chunks of the Murdoch empire, is just that recognition that the Murdochs cease to have the power to positively impact their family’s and their assets’ future within the constraints laid down (market competition). Letting go is a common sense response, nothing more.

© James Berkeley 2017. All Rights Reserved.

It Is Really Not About You

Friday, November 10th, 2017

 

Why do so many seasoned, and less seasoned entrepreneurs seeking to attract new investment shoot themselves in the foot? They are rarely short of industry knowledge but they are woefully lacking the process skills and critical thinking to attract serious investors. Acquiring investment is about investors. An investor validating their own judgement, no one else’s.

Yet all I here at the outset, is how great the entrepreneur’s business skills and judgement are, wrapped up in their business model and growth plans.

When I push back and ask, “what” (strategy) have/are you doing to help your ideal investor validate their own skills and judgement after they are done with your investment? I am invariably met by a blank stare. That is compounded by my supplemental question, “how” (tactics) have/are you planning to help your ideal investor validate their own skills and judgement when they are done with your investment?

In the absence of a strategy and tactics for creating powerful, sustainable and profitable partnerships with  investors, an entrepreneur’s mission will never be met and manifest. Here is three powerful lessons from my most successful clients:

  1. Raising, deploying and realising capital is a “process”, not a small number of events. It has a “before” (trust, relationship building, conceptual agreement culminating in agreed terms), “during” (effective implementation, impressive value creation, robust risk mitigation) and “after” (planned disengagement, rapid realisation of committed capital plus impressive gains, efficient remittance of resources). Or to put it crudely, cash and resources “in”, cash and resources “out” / time period.
  2. Timing has a “hierarchy of priorities”. (1) the investor’s financial, intellectual, social and cultural needs (most only think about the first need and rarely consider how those are changing in the lifetime of the investment), (2) the availability of an appropriate exit to ensure the investor’s objectives are met and (3) the  future of the business.
  3. They think and act like a successful investor. An investor thinks with logic but acts on emotion, although in some cases the latter might be as heard to discern as Robert Shaw’s face in that infamous card game on the smoke-filled train carriage to Chicago, in my personal favourite, The Sting.

Uncovering The Investor’s Logic and Emotional Reasoning

  1. The reward logic behind the deal. How might it meet or exceed the investor’s need for capital preservation and capital gain, the return on the investor’s intellectual time invested, the social impact met and the cultural benefits accrued (for example, greater affinity with like-minded investors)?
  2. The risk logic behind the deal. What is the seriousness and probability of foreseen and unforeseen obstacles with the deal preventing the investor meeting or exceeding their desired outcomes? Then, what preventative and contingent actions can realistically be applied to arrive at the deal’s “ultimate net risk”?
  3. The sum of the above is the investor’s “great deal” logically. We are not finished yet!
  4. The emotional rewards behind the deal. How might the emotional imperatives of the investor (“reward”) be transformed (repute, peer recognition, trusting relationship with the General Partners and co-investors, promotion prospects, larger bonus and share of carried interest, ego, greater responsibilities, career development, future capital made available, new fund created, more impressive future dealflow presented and so on)?
  5. The emotional risks behind the deal. What is the seriousness and probability of foreseen and unforeseen obstacles with the deal preventing the investor meeting or exceeding those desired outcomes? Then, what preventative and contingent actions can realistically be applied to arrive at the deal’s “ultimate net risk”?
  6. The sum of the above is the investor’s “great deal” emotionally. That is what they are going to make their final decision based on. Are you investing sufficient time and energy in the right area? Are you thinking it through smartly? My guess is most entrepreneurs are spending 90% of their time on the logical reasoning and perhaps 10% on the emotional reasoning when it probably needs to be inverse. Why would you do that?

The smart readers will quickly grasp that a PowerPoint deck or teaser is largely worthless at addressing the latter. You need absolute credibility. You need to take time to build a peer-level trusting relationship. You need to ask powerful questions in a way that the investor is willing to reveal his or her priorities. The shorter the question, the more the investor will reveal. It crystallises it for them. “What are your hopes? Why? What are you fearful of? How did you get to your position?” Frame the question, listen and follow up in a smart way. You cannot coerce or motivate them.

Your job, as an entrepreneur, is to aggregate and connect the dots for the investor. To convert, the credibility and seductive rapport into committed capital with the use of powerful language and a compelling interface for the  investor.

After reading this you may very well panic and spot a yawning gap in your skills and techniques. That is OK, find an entrepreneur, who has done what you successfully seek to do and who can translate and transfer it to you.

A word of warning, a great many advisers don’t qualify, nor do a great many entrepreneurs, who are inept at the translation and transference. Hire qualified advice sparingly.

© James Berkeley 2017. All Rights Reserved.

 

A Time And A Place

Thursday, July 27th, 2017

 

What is the price of privacy and silence in a workspace? Money and demand are abundant from small medium enterprises wanting more flexible offices, and investors hurtling after them with bags of moolala. WeWork, the co-working giant, announced today that it has raised $500 million from SoftBank and Hony Capital to fuel its growth in China. I am helping another ambitious group charm professional investors with their Mandarin Oriental-style idea and secure north of a $100 million backing. Indeed, I write this sitting in my own upscale serviced office located in the heart of London’s West End.  Yet there is one drawback that almost all of these co-working/serviced office operators have not properly addressed. Co-working is great until you want privacy and silence. You struggle like hell to find it. Hip canteen or dining areas, noisy club lounges, and expensive, clunky meeting rooms with time-consuming booking systems don’t provide real-time access to the seamless professional environment and image that your most discerning clients expect. Perhaps in a techie world but sorry, not in a professional services or financial services firm. It is like asking an Englishman to adhere to a relaxed dress code at a wedding, it is carnage. I am sorry but I neither want to work in or be seen as an underpaid HR manager ghosting in a Starbucks mid-morning. Whether we like it or not, informality in a business setting has its’ limits on how we think about ourselves, our productivity and our profit.   The operator, who can truly provide a workspace with “flexible” privacy and silence is really the one to throw serious money at.

© James Berkeley 2017.

In The Eye of A Private Investor

Monday, June 5th, 2017

 

You are a C-suite executive or senior manager (probably with a successful career in a mid and large organisation) flirting with future advisory roles (Operating Partners, Senior Advisers and so forth) with private investors (Family Offices, Ultra High Net Worth individuals and some funds) and their portfolio companies. I meet half a dozen a month. Are you looking through your lens or that of the investor’s? When I ask bluntly, “why would a private investor be interested in you?”, most default to regaling their past (skills, expertise, accomplishments) or they way they like to work (imparting advice, influence, guidance). Here is the tough news, most private investors really don’t care. They want to know about

  • the “transformative value” (TV) for the investor after the Adviser has applied their past to the future of their investee businesses (logical reasoning – increased revenues, stronger brand, faster growth etc.)
  • the speed and quality of the “validation” (V) for the investor’s own reasons to back or not, a specific business (emotional reasoning – “am I going to look good”, enhanced credibility, mitigate personal risks, obtain future opportunities or relationships with peers, other investors, investee businesses etc.).

TV * V = Private Investor’s return on investment or “Great Deal”

“What”, “where”, “when” do you score highest as a potential Senior Adviser? Why? How do you get to those private investors with the highest need for that value?

Keep that equation and those critical questions uppermost in mind BEFORE you walk into your first meeting with a private investor.

© James Berkeley 2017

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.

 

Brexit: Now Britain Quits EU What Is Next

Wednesday, March 29th, 2017

Four years ago, I contributed to this International Business Times article on Brexit. The impoverished reporter, Moran Zhang, is now a highly paid equity analyst at a Boston asset manager. Life is good.

http://www.ibtimes.com/brexit-if-britain-quits-eu-what-then-1106522

Unlike most forecasters, I am willing to be intellectually honest about my predictions!

#1 I suggested that there was a 70% chance the UK would be still in a reformed European Union. That reform hasn’t discernibly arrived, and from Wednesday, Britain is formally leaving.

#2 I suggested there was a 25% chance the UK would be part of the “outer rings of the European Union”. That will almost certainly be the end-game in some shape or form.

#3 I suggested Brexit would be a process, not an event. There would be no zero cut-off, which is exactly what is happening. The UK will still have commitments after the formal exit date, which it must or wants to keep, for example, security cooperation.

Where Are We Today? A 20% devaluation against the USD, a more attractive export environment, a stock market near all-time highs and near record low interest rates. Signs of inflation increasingly present in the food we buy at the local stores. By almost all measures, we remain in a largely attractive environment for inwards investment, consumer confidence, albeit productivity improvements are slow to feed through and personal debt levels remain high. There remain sharp geographical distinctions. A city state in London that has abundant foreign wealth slushing around, albeit not so much into £10M+ prime residential property but still seeking a home in private equity via funds or increasingly direct investment.  A robust jobs market. In comparison, some of the provincial towns and particularly in Victorian seaside resorts, where prospects for commercial businesses and the local population are less rosy. High streets (or Main Street, as my American friends love to refer to it), is symbolised by abundant charity shops dispersed between closing down sales. Little or no meaningful investment into new economies and new careers. There is a visible political, economic and social divide.

Where Are We Headed? Does anyone really know? Of course not but that doesn’t stop us hazarding a guess. We are in for a minimum 18 months of fraught negotiation, where I think those in the strongest position (Germany) will push the case for a fair settlement with the UK and those in the weakest position, will stubbornly resist (France, Italy, Spain). Politicians will think with logic and act on emotion. Traditional enmities and grievances will be magnified. Leaving is not going to be easy for those remaining in Europe and the UK. Fault lines already visible in the UK, will become more adversarial. We have to learn not to take what others say literally but to take them seriously. That applies to those outside the political bubble, investors, businesses and those directly affected by the political decisions. It is a boom time for patient private capital that can look beyond the immediate volatility.

Life after Brexit for the UK, is also largely dependant on the speed and quality of the trading alternatives. Can the UK create or rather build powerful interfaces with non-EU members to attract abundant sources of capital, people and innovation? Can it manage that process while adhering to the need to control immigration? Probably so. The UK’s future relationship with US, China, India, Canada and so on, has two forks the public (trading agreements) and most importantly, the private sector, the ability of UK SME and mid-market firms, the largest net jobs creators, to open new foreign markets, to attract new sources of capital, to spur new innovation not simply solve existing problems and so forth. The headlines about large global employers shifting jobs are far less significant, yet the media doesn’t portray that story.

The real story is the skills, behaviours and experience each of us has to thrive in that environment. What are we going to do about it? What are we going to push our employers, employees and investors to do about it? What has got us to where we are today, is in all likelihood going to be insufficient in a post-Brexit UK.

My prediction is that in four more years, 2021, there is a 70% chance the UK is in a more prosperous position than we are today. I think there is a 20% chance that we are in a mildly negative position (period of extended sluggish growth). A 5% chance that we are in a disastrously worse position (serious recession, sharp contraction in spending).

I didn’t vote for Brexit but now we are where we are today. Private polling has shown that there is a “silent majority” (former “Remainers” and “Brexiteers”) determined to make a success of their lives. There will of course be the “Victims of Brexit”. Those who will link the decision to leave the EU to their current and future woes, while consciously disregarding their failure to personally reinvest in their own skills, behavioural traits and experience. Those, who absolve themselves from personal accountability for the decisions that are within their control.

Let’s regroup in March 2021!

Adieu.

© James Berkeley 2017. All Rights Reserved.