Posts Tagged ‘transition’

A Vulnerable Seller

Monday, November 13th, 2017

Here is something counter-intuitive for a great many sellers of high-growth and mid-market privately-held businesses. If you want to maximise the price on exit, you need to maximise your vulnerability. Yet most sellers have spent years doing the exact opposite.

Vulnerability is largely a function of a seller’s self-worth (“I won’t allow the sale outcome to influence how I think about myself”), giving yourself permission to be vulnerable and the quality of your support system (friends, family, advisers and acquaintances). Hence any transition plan in the lead up to the start of the exit process, needs to address all three aspects, in advance, alongside:

  • Any fractured personal relationships (spouse/partner/family members)
  • Any past, present or future “private promises” made by the business to fellow shareholders, managers and family members (financial or no-financial)
  • Any private grievances (key clients, key business partners, key suppliers) or events (disputes, potential regulatory breaches etc.) that might reasonably give the buyer cause for alarm in due diligence or god forbid, post-sale.

You are rightly proud of the business that you have built. You have had proprietary control of the reins (people, capital, resources). Your control has given you power (discretionary authority) and protection (preeing eyes). The “4 P’s”. Now a buyer (strategic or financial) is being asked to make an informed judgement on the value of your business to their ideal future. What is the sum of your pride, your proprietary control, your power and your protection worth to them?

A buyer can rarely understand it (quality of your people and management, quantum of uncertainty, competitive threats) clearly without you being voluntarily vulnerable (trust). You cannot negotiate successfully without putting yourself in a position of vulnerability (willing at any point to walk away from a proposed deal), irrespective of the  consequences (financial, non-financial, business or personal). That requires a mix of internal and external attention as early as possible in the transition process. If appropriate, hiring someone, who has successfully dealt with those issues in their own business and who can help navigate you through the process. Almost certainly, not an internal figure, nor your corporate finance adviser. Someone, whose skills, behaviours and expertise are strongly aligned to your discrete personal and business needs.

© James Berkeley 2017. All Rights Reserved.

The Entrepreneur’s Uncommon Legacy

Friday, June 30th, 2017

90% of entrepreneurs want to leave a powerful and lasting legacy upon the successful transition of their business, yet most fail. I define “legacy”, in a business context, as a framework within which decisions are made today about sustaining the beliefs that will enable the business to thrive in the future.

Failure is not in my experience down to the most obvious reason (renouncing control) rather it is the absence of people, long before the sale of the business is concluded, with the skills and volition to implement the entrepreneur’s desired legacy in the real world, and constant procrastination. Here is a simple checklist for the Entrepreneur:

  1. What would a successful legacy look, feel, touch, smell, taste like to those who are important to you and in what realistic timeframe?
  2. Whose support must you command upfront (exemplars, key influencers) to sustain it?
  3. What specific goals are you trying to accomplish internally and externally (e.g. improve succession planning, more impressive innovation, heighten customer awareness of societal issues etc.)?
  4. What elements need tackling first (e.g. strengthen career development, prioritise resource to performance improvements not fixing problems, identify exemplars etc.)?
  5. What must be done tomorrow and the day after?
  6. By whom and by what deadline?
  7. Do it.

If you need additional expertise, hire it. One of the biggest mistakes is the assumption that the content knowledge your coterie of existing advisers and top managers have about the inner workings of the business is sufficient to succeed. Here is the litmus test for the Entrepreneur:

  1. Do my key people possess a high, moderate or low level of familiarity with my legacy?
  2. Do my key people possess a high, moderate or low level of clarity about my legacy?
  3. Do my key people possess a high, moderate or low level of skills to implement my legacy?

Better to have started early, tried and failed than for the entrepreneur to look back with regrets about the mistakes that were made by not being bold enough or making it your priority, before the business was sold.

© James Berkeley 2017.

Advisory Titans: A Sword of Damacles

Tuesday, March 25th, 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.