Posts Tagged ‘Succession planning’

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.

 

California Broker: Certainty In An Uncertain World

Thursday, May 21st, 2015

The challenge for many owner-managers of brokerages is that they find thinking about the future of their organisation hard work. I am referring to taking conceptual ideas of how to transform the business into pragmatic steps that everyone within the firm can readily understand how their daily interactions support or hinder the firm’s progress.The future of brokerages in California and other businesses is frighteningly simple. There are five components, here are three of them: the quality of management (QM), the quality of employees (QE) and the amount of uncertainty within the business (AU).

In this month’s California Broker, the pre-eminent publication for life and health insurance businesses in California, James provides essential advice for every Owner, irrespective of their time horizon and objectives.

Click below to learn about the other two components and how you can quickly apply this powerful technique to better understand what action you need to undertake to accelerate the probability of arriving at your desired destination.

http://www.calbrokermag.com/in_the_news/certainty-in-an-uncertain-world/

© James Berkeley 2015. All Rights Reserved.

Partnership Perpetuation

Sunday, January 11th, 2015

Partnerships in most professional services firms hinder not support perpetuation. Long the favoured organisational structure for establishing and building businesses, unless three key ingredients exist, the very survival of the firm is in danger:

1. Accountability for profitable growth and transition is clearly defined. Delegated individuals have the ability to make decisions and move with haste, when required.

2. The core values and operating beliefs are aligned with the firm’s strategy at all times. If the core value is “we put our clients interest first at all times”, and the operating belief of partners nearing retirement is “I will only support investments that minimise my personal risk”, you potentially have a misalignment with long-term investments (upgrading skills and technology) that enhance the client value proposition.

3. The focus is on success (perpetuation) not perfection (unequivocal partner support).

The hallmark of great partnerships is that succession planning is not accidental, it is planned and actively managed.

There is a fine line between triumph and disaster. Recent implosions of law firms Bingham McCutcheon and Davenport Lyons show how poorly managed perpetuation can result in a dramatic collapse. Time is rarely on a partnership’s side.

© James Berkeley 2014. All Rights Reserved.