Archive for May, 2011

Social Media Strategies – We Still Have A Long Way To Go

Thursday, May 19th, 2011

Our guest this week is Andrew Jenkins, Principal and Owner of Volterra Consulting, a strategy consulting firm specializing in emerging technology.  Volterra’s work spans e-business, wireless and social media with clients in Canada and Europe.

Where are we now?

Periodically, I am reminded of the fact that the ubiquity of social media is more a perception than a reality. By that I mean, because so many of my network and I are immersed in social media that I often think that everyone else must be too but then a comment or some data analysis will prove the contrary.

As I write this, I am in the process of developing a social media module for an executive education program focused on marketing. I had the opportunity to research the social media profiles of the attendees and the companies that employ them. They run the spectrum from no presence at all to being on most or all of the predominant social media platforms like LinkedIn, Facebook, and Twitter.

I also recently gave a presentation to a room filled with 100+ people from the cardboard manufacturing industry. Before diving into my presentation, I asked the room for a show of hands from those on Twitter, Facebook, and LinkedIn. The results were what I have come to expect. LinkedIn had the most respondents followed by Facebook and Twitter respectively. However, none of them had the majority of those in the room. In fact, they collectively comprised the minority.

Now I could suggest that this was because of the industry I was presenting to but I think that that is unfair. I think it has more to do with the age of social media and the fact that not everyone has the same familiarity with social media and where and how their personal and professional interests and business strategies can be helped.

Why Are We Here?

We must remember that LinkedIn is only eight years old while Facebook and Twitter are seven and five years old respectively. To put that into context, email is over twenty years old. As business owners and companies come to operationalize social media with their organizations and people come to realize the value and power that can be derived from social media then we will begin to see the tide turn more quickly.

Right now, there is a lot of hype coupled with a lot of skepticism. Most of the discussion is around social media in a B2C context but I also believe that growth in social media discussions in the B2B space will shift things from being a “that’s what people do in their spare time” to being part of our everyday work lives.

What Are The Benefits?

Some may be resistant to social media strategies in their everyday work lives but over time they will come to see and benefit from the collaborative nature and resource value provided by social media. Those are just a couple of the aspects that I reference when sharing the power of social media with people.

I have grown revenue, been invited to join boards, expanded my professional and collaborative relationships, and received promotional opportunities because of social media. Those currently make me an exception but I cannot help but think that they will become more commonplace in the future.

Share

The Strategic Management Of Intellectual Property Rights

Thursday, May 12th, 2011

Our guest this week is James Minns, senior counsel at Shibley Righton LLP.  He serves as leader of 3 practice groups: the Intellectual Property Practice Group; Media, Arts & Entertainment Practice Group; and Insurance Practice Group. He is a top legal mind in the area of copyright and rights protection, and has represented major clients in technology, media and telecommunications.

What are Intellectual Property Rights (IP) and why are they important?

Intangible assets such as patents, trademarks, copyright, industrial design and trade secrets have become an increasingly important and valuable part of trade and commerce in our modern economy.  The strategic management of intellectual property rights (IP) has to be top of mind for business owners and managers in all manner of commercial transactions.

Why do you need IP Audit?

The strategic management of IP begins with an IP audit which allows management to determine the scope of the company’s ownership interests in various assets, set their fair value, and to make informed decisions on future actions and transactions.  The necessity of protecting your intangible assets becomes more pressing as the company expands, enters into complicated transactions with global third parties, and as more goodwill becomes attached to the company’s name and its products.

What is an IP audit?  An IP audit is a systematic identification, review, and evaluation of all the IP owned, used, and proposed to be used in and/or acquired by a company.  The overall purpose of an IP audit is to identify and assess all of the company’s intangible assets in order to conduct a SWOT analysis to determine the valuable core assets and optimize their usage through a systematic long-term strategy.

What is the IP Audit Process?

The steps that are involved in an IP audit include information gathering through data collection and personal interviews.  Data collected might include copies of product brochures, product notes, advertisements, release notes, signage, labels, tags, and assorted agreements. They will also include documents such as marketing files, federal registrations, foreign registrations, government contracts, license and maintenance agreements, consultant agreements, employee agreements, distribution agreements, supplier agreements, and purchase orders.

Information gathering is followed by a process of research and review.  Consideration is given to registered and unregistered IP. Federal registrations are not necessary in order to assert ownership interests in IP. Actually, it is imprudent to register all of your intangible assets since not all the IP will be worth the investment.  Registrations are valuable in that they give rise to a presumption of ownership and provide a broader scope of protection.

Searches should be conducted to reveal any pending or threatened litigation or other proceedings against the company’s IP rights. It is important to effectively deal with such proceedings in the early stage as they could get more complicated with time and significantly lower the value of a company’s IP.

All the relevant contracts or agreements will be reviewed to assess whether they provide adequate protection to the company’s intangible assets and whether they protect the company from infringing against third party rights in IP.

Some questions to consider.

All the information gathered from the data, interviews, searches, and review will be consolidated and analyzed to properly evaluate the company’s IP rights and make informed decisions. The following are some of the questions that may be considered at this stage:

  • Given their strengths and weakness, what is the value of the intangible assets?
  • What are the core intangible assets and how should they be managed and developed?
  • What are the intangible assets that should be abandoned given their weaknesses and/or risks?
  • Do some product offerings infringe the rights of third parties? If so, how much alternation in the design is necessary in order to protect the company’s products against infringement claims?
  • Could we use variations of our trademarks without losing their distinctiveness?
  • If others are using variations of our intangible assets that infringe on our rights, how should we approach these problems?
  • Are there unregistered intangible assets that should be further protected through registration? What are the assets, if any, that no longer require the protection of registration?
  • How can we effectively protect our confidential information through contractual provisions?
  • How can we effectively protect our ownership interests in our intangible assets as against our employees and consultants?
  • What would be the most effective means of storing, organizing, and presenting the data on intangible assets?
  • Is a tickler system necessary so that the company personnel may be alerted of important dates in relation to IP registrations?

The outcome and benefits.

The final product of an IP audit is a catalogue of registered and unregistered intangible assets that would allow for a quick reference to discern their registration status.  A written report will be prepared summarizing the results of the IP audit. Recommendations will be made in relation to strategies to minimize IP risks and to maximize, protect and enhance the value of the company’s IP.

You can contact James at 416-214-5259 or at jeminns@shibleyrighton.com

The Future Of Your Business: Succession or Exit?

Thursday, May 5th, 2011

Our guest this week is Jim Pullen of Concert Partners. His career has included cross-border mergers and acquisitions of international technology companies. He is a senior advisor to Tequity, a specialist M&A firm in the technology sector.

Succession or exit – it’s a stark choice, but since we are all mortal, one of these is going to happen!

A recent study of Canadian businesses showed that while 70% recognized that a transition or exit will have to take place, only 7% had a plan! And incidentally, selling at the best price at the right time doesn’t constitute a plan!

I worked for an international mergers and acquisitions company in both London (UK) and Boston (USA). While I was there we carried out a study of 250 M&A transactions we were involved in, over a span of 8 years.  The transactions took place in Europe, US, and Canada. 

We wanted to find the key areas that buyers looked for in a transaction.  Based on the study, we developed a framework for ranking and assessing a company on the factors that were proven to drive a valuation.

The main areas of value enhancement that emerged are described below.

1. Financial

This category includes basic financial metrics such as profitability and revenue growth.  Companies with high profit margins and high rates of revenue growth obviously command a higher valuation. 

Other aspects include the type of revenues a company generates.  Recurring revenues can add to a valuation as it makes the company’s cash flow more predictable. So, for example, a company that sells big ticket one-off products could look to build up more of an offering around maintenance and post-sales services for their product – where they can sign their clients into multi-year maintenance contracts. 

Companies with strong cash generation are also more attractive to buyers.  They are able to take on more debt that can be used to finance growth.  It also makes a leveraged buy-out possible.

2.   Market & barriers to entry

In this category the factors include the strength of customer relationships and degree of uniqueness the company enjoys in its market.  Companies that have a direct and strong relationship with the end users/purchasers of their product will get a higher valuation.

Brand, which clearly has to be part of a long-term strategy, plays a large role in the value a buyer places on a company.  We found that a strong brand can make up to 70% of the value in a company.

In terms of barriers to entry, companies should use many mechanisms to defend their position. Examples are legal protection though patents and trademarks, exclusive relationships with key suppliers, and building internal expertise through strategic hiring.  Anything a company can do to make it harder for competitors to enter their space will help command a premium on valuation. 

3. Human resources

In this category, the framework looks at both technical skills and management skills.  As companies grow, it is important to distribute the key skill sets deeply across the organization.  Often after an exit, the founders will want to leave, either because they have a large financial gain or they prefer to be entrepreneurs over working in a large corporation.  A buyer will place a premium on a deep management team so the company can continue to innovate and execute even with the loss of the founders.

4. Strategic fit

This factor relates to the degree that the company being acquired is a strategic fit for the buyer’s product portfolio.  We have seen cases where buyers are willing to pay a 50%-70% price premium for a company that fills out a missing piece of their product portfolio and gives them access to the markets and expertise. 

Partnerships are an excellent way to lay the foundation with a potential buyer.  A partnership is a low-commitment way for them to get deeper experience with a potential acquisition. If things work out well and strategic synergies start to develop then it is easy to take the step towards a deeper relationship.
 
5. Governance

The last factor involves good governance.  We have found that a strong board of directors can add a 25% premium to the value of a company.  This is due to the buyer having more assurance that the company has been well governed and there will be no unexpected surprises they need to deal with.

A Few Final Thoughts.

There are 3 main ways in which the succession issue can be handled: a younger generation of the family takes over; the executives buy out the owner via a management or leveraged buy-out (MBO/LBO); or there is a liquidity event (the shares are given some realizable value) by means of a trade sale or listing on a public market (Initial Public Offering or IPO).

Whichever route is taken, it is clearly in the shareholders’ interest to maximize the value of the business prior to that event.  The ideal time to begin that process is on day one, but it may not be too late; 2 years is a realistic timescale in which to groom a company for sale/transition.

Let me leave you with 2 thoughts. Begin thinking about it today. And get some help from people with experience.

Jim currently provides corporate development consulting services and mentors early stage businesses at the ventureLAB in Markham. You can contact him at jpullen@concert-partners.com

The 2 Truths Every Business Owner Has To Face

Tuesday, May 3rd, 2011

There are 2 truths every business owner has to face.

You can’t sell a business which isn’t successful. No one’s going to buy a company that hasn’t consistently produced good profits and cash flow – which they believe will continue after the change in ownership.

No one is immortal. So, every privately owned business is going to be sold, to the next generation or a third party, at some point in time.

Why some owners ignore the second truth.

Building a successful company requires vision, developing a flexible strategy and actually implementing that strategy. Then there’s finding funding, hiring and keeping good people, dealing with customers and suppliers, managing/leading and I’m only getting warmed up…………………..

When building a successful business is totally absorbing and fulfilling why would you consider selling? When all of your time and effort is focused on dealing with what is happening now, thinking about an exit strategy seems irrelevant.

Here’s another reason. While all business owners start their companies because they have an idea they think is a winner – their baby – the people who currently own businesses come from at least 2 different generations. And with this, as with everything else, each generation views things differently.

Many older owners – if they even think about it in these terms – didn’t get into business for the capital gain at the end of the day. They got into it to provide an income for their families over their working life time and to build something tangible.

However, younger business owners – those in their thirties and forties – are more likely to be focused on selling before retirement age and doing something else with the money they make on cashing out.

Why you can’t ignore the second truth – especially if you’re older.

If you’re older you are, by definition, closer to the end (however you define it) of your career. And we know that a large number of Canadian business owners are closing in on 65 or 70 – or more. We also know that the majority of them haven’t begun planning for succession or a sale.

This is bad news. Here’s why.

If you build a successful company but make no plans for your exit you destroy the value you’ve created. It’s only a question of the degree to which you do it.

It’s not logical to end a career spent laboriously creating value by doing something that gives that value away.

So if you are an “older” business owner – or if you know someone who is – do something about it now.

It’s not too late – but it will be very soon.

If you’re not sure where to start speak to us – or others like us.

Post History