Posts Tagged ‘strategy’

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.

 

Uncommon Culture and Family Office Direct Investing

Monday, March 27th, 2017

 

I often ask CEOs in high growth investee businesses controlled by sizeable Family Offices,  a simple question: “Are you being treated as you would treat others in the business? Be honest, in reality, how often is that the case?” The single most common underlying issue, is conformity to the prevailing belief system.

CEOs have differing levels of propensity to conform to the beliefs that govern the behaviour of a Family and the key people in its’ Family Office (the culture). At one extreme, highly inflexible, and at the other end, highly flexible.

The most successful families in direct investing have adopted a belief system that is highly similar to outstanding for profit and not-for-profit organisations. Think of Weybourne Partners (James Dyson’s Family Office), MSD Capital, (Michael Dell’s Family Office) or Grosvenor (the Duke of Westminster’s family entity).

In contrast, where direct investing has historically been a very small part of a Family’s wealth but a decision is made to ramp up its’ activity, culture is a huge issue. The Family Office wants to increase control and involvement of the capital deployed in profitably growing the portfolio businesses. Yet, the operating beliefs that pervade the Family Office rarely change or not quick enough, to support the new or enhanced direct investing strategy.

Take a recent example, the newly installed CEO in a European luxury business, who arrived with a strong industry reputation but zero experience working within, distinct from consulting to Family Offices. The coterie of key people in the Family Office, what I term the “protectors” sought to immediately reinforce and immerse the CEO in the existing belief system. “This is how the Family has always done things….” “This is what Mrs X expects…” “This is how you communicate with her….”  Yet, if the luxury business was to achieve the shared vision of the Family Principal and the CEO, some quite radical changes needed to be made to the Family Office’s typical direct investment approach – changes to governance, speed, communication, rapid access to resources and so forth. The “house style”, wasn’t going to work in a fast moving, highly competitive sector.

Does the CEO conform or push back? If they do the latter, how do they do that without upsetting the apple cart? How do they accomplish that if the protectors, and the Family Principal, consciously create distance? How do they stop the protectors “playing” the Family Principal (self-interested feedback) and not projecting their biases?

There are three means of the Family Office getting the investee company’s CEO to conform: by coercion (threat), by peer pressure (“the in-crowd”) or by self-interest (personal benefit). Only one alternative works, self-interest.

Ultimately, it requires

  1. A CEO with a high level of self-worth and the skills to not only formulate strategy but implement it.
  2. A flexible and intellectually honest CEO. Not to the extreme of absolute conformity and equally never compromising where it is detrimental to the critical and highly important aspects of their strategy.
  3. A Family Principal and their key people with the volition to listen and act appropriately.
  4. A willingness to adapt the Family Office belief system to the needs of the new direct investment strategy and where appropriate, the performance, accountability, feedback and rewards systems.

There is a lot of talk about an inability to change family culture, most of it is rubbish. Of course, the Family Office can change but does it possess the will to do so? If it doesn’t that needs to at the top of its’ direct investing criteria in selecting portfolio businesses and the leadership traits it hires in.

© James Berkeley 2017. All Rights Reserved.

 

Chasing An Entrepreneur’s Dream

Tuesday, March 21st, 2017

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I ‘ve had a 40 year passion for the sport of horse racing, in particular national hunt or steeplechase racing. The global heartbeat of the sport lies in Ireland, UK and France. For four days in March, the very best horses and horsemen gather in a natural amphitheatre in the Cotswolds, 100 miles west of London, to compete for 28 races and prize money totalling £5 million. Cheltenham is Glastonbury, Burning Man and the Mid-Autumn Festival wrapped up in a visceral connection with a sport that breaks hearts and delights in equal measure. 260,000 racegoers passed through the gates last week, a great many Irish, to bet, roar approval and dance the night away in the local inns and hostelries until dawn. Male and female, men of the clergy, the soil and the City, grandparents telling tales of old to the young, and the carefree exhibiting their party tricks to any willing audience. Year after year, it is a rite of passage to have “done Cheltenham” from Roscommon to Newbury.

Yet behind this beguiling sport and its’ pinnacle, lies a modern story applicable to any growth business or industry, a tale of a sport where the elite level has created a gargantuan gulf between itself and the rest of the sport (Formula One, America’s Cup). Resilience, separates those who thrive from those who merely survive or throw it in.

Billionaire and multi-millionaire owners, who are willing to satiate their passion “blowing” £10 million a year after-tax in the hope of their horses achieving glory, albeit with zero residual value. Gucci-loafer clad bloodstock agents, trainers, jockeys and vets only too happy to help.

Dramatic scientific and technological improvements (breeding, procurement, nutrition, strength and conditioning) over the past 25 years have enabled the very best trainers to create very powerful systems, backed up by dominant levels of financial capital. Competition at the elite level, will always be sustained because the nature of animals racing against each other and jumping 20 fences is not an exact science. Yet many of those in the “squeezed” middle and the lower rungs of the sport complain that their businesses are near, or at breaking point. The patronage of five powerful men has created a concentration of power and influence in the hands of a very small pool of horsemen. They are paying for glory, the big race winners. Success has bred success and breaking into the chosen clique has become extremely difficult.

Yet there is no shortage of young aspiring horsemen willing to go “all in” chasing their dreams of breeding, selling, training or riding a big race winner. Their passion is such that just like a jobbing Hollywood “runner”, they are willing to embrace the 85 hour working week on a very modest wage, and menial tasks, to work their way up the ladder. Most won’t make it, some will leave the sport with their ego dented and in good health, others won’t be so lucky, retired jockeys with broken bodies, and “burnt out” trainers with deep levels of personal debt. The sport has an incredible level of camaraderie and philanthropy, largely hidden offers of future employment, re-training or housing. It is a sport where attendance at church in the major training centres on a Sunday remains exceedingly high. Thankful for the good life, if not the good luck.

It is a sport like many industries that takes no prisoners, where no one is guaranteed success, billionaire or horse groom. It teaches us that resilience, resilient people and resilient support systems (family, friends and mentors) are key when chasing our passion and ideal career.

The black days, for they will come as certain as the sun will rise over Cheltenham’s Cleave Hill in March 2018. The hopes of many resting precariously on the back of a four-legged animal jig jogging to the start, thousands disappearing into the satchels of on-course bookies pitched in a fierce four-day battle with punters and a great many in the game, acutely aware that fate may deal them a glorious hand or consign them to the “has-been” tray forever. As entrepreneurs, we take many of the same risks and experience similar highs and lows, yet by and large, we are only humbled by defeat if we choose that pathway. Yet, we too must be realistic about the nature of our business, our ideal future and the growth journey we choose. It is great to dream but without resilience, talent and discipline, we won’t get there.  Are you willing to bet sufficiently big on yourself?

© James Berkeley 2017. All Rights Reserved.

 

 

 

James Berkeley to Speak to Stanford Continuing Studies Start-Up Class On Uncommon Early-Stage Capital Raising Approaches

Wednesday, October 19th, 2016

 

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Berkeley to Discuss Strategy and Tactics for Global Entrepreneurs  

London, England— 19th October, 2016

James Berkeley, Managing Director of ELLICE CONSULTING LIMITED will be speaking to  the Fall 2016 class, “How to Build Successful Startups,” about how to get investors eager to meet you, the behaviours that turn them off and why “CASH”, a concept developed by Berkeley, is the quickest route to obtaining committed capital. The online Zoom session is scheduled for Thursday, 20th October, 2016 and is being co-hosted by Continuing Studies Program instructor John Kelley.

“I am constantly amazed by what I didn’t know two months ago. In bringing hundreds of investors and entrepreneurs together from around the world to address complex and ambiguous growth investments, continuing education is arguably the most under-valued aspect of the entrepreneurial journey. We invest blood sweat and tears in our business ideas and ask investors to validate their judgement by deploying scarce capital, yet as entrepreneurs we are often remiss in investing appropriately in our own skills, expertise and behavioural traits”, notes Berkeley, an expert in sourcing and deploying capital in world-class businesses. “The future for entrepreneurs is about “CASH”. Compulsive content, abundant credibility, striking rapport with investors and huge cash-on-cash returns. The good news, it has never been easier for entrepreneurs to stand out from the crowd so long as they are willing to engage with investors beyond the obvious steps.” Berkeley will help participants to translate his success practices into practical action for immediate application in their own businesses.

James Berkeley brings entrepreneurs and investors, who never imagined collaborating together to turn a business concept into an organisational reality. Today: an idea. Tomorrow: committed capital. He has worked extensively with North American, European, Middle Eastern and Asian venture capital funds, corporate venture capital, Family Offices and HNW entrepreneurs seeking proprietary deal flow and strategic deployment of capital into remarkable business ideas. He has helped over 120 investors and entrepreneurs in insurance, financial services, leisure, business services and technology source capital and accomplish record amounts of value creation in the past 5 years with impressive cash-on-cash returns.

Interview With Me: Do’s and Don’ts of Investing in Private Comanies

Tuesday, September 27th, 2016

In an interview for U.S. News & World Report with the former longtime staff writer, editor and columnist at the Chicago Tribune, Lou Carlozo, James talks about why many investors in private companies jump on the bandwagon of out-sized returns while overlooking the inherent risks.

http://money.usnews.com/investing/articles/2016-09-20/dos-and-donts-of-investing-in-private-companies 

 

 

Interview With Me: cnbc.com

Tuesday, July 5th, 2016

In an interview with CNBC’s online platform, James shines a light on the challenge today for high-growth small businesses seeking to ascend to the next level and successfully transition ownership. Essential insight for entrepreneurs, HNW investors and Family Offices with direct investments in illiquid investments.

How To Sell Your Small Business

http://www.cnbc.com/2016/07/05/how-to-sell-your-small-business.html