Archive for March, 2014

Use These 3 Tips To Make Your Next Critical Decision

Tuesday, March 25th, 2014

I am a Libra; my astrological sign is the balancing scales. I don’t, however, believe in astrology.Weighing all the factors when making critical decisions

On the other hand, I do tend to see both sides of an argument.

Which can make decision-making interesting for me. So, I read articles about it.

I saw one the other day which featured Ram Charan¹  who co-wrote “Execution”, one of my favourite books on strategy.

He’s been working with accomplished business leaders for almost 30 years, watching them making some really difficult decisions.

Charan says they do 3 things when faced with a critical decision.

  1. First they focus on the end goal. They are very clear and specific about what has to be achieved. There is no ambiguity in their thinking.
  2. They consider all of the options or alternatives. They do not hesitate to think “outside the box” using their imagination and creativity, but temper the results with pragmatism.
  3. Then they go and get different points of view. Why, because critical decisions often deal with complex issues and the business world can move very quickly now. Getting diverse input helps them see as many aspects of a situation as possible.

Having done that, they use their judgment to focus on the 2 or 3 most important factors affecting the decision. Finally they think through the consequences of their decision. And come up with contingency plans to deal with them.

Of course they do these things simultaneously and complete the process relatively quickly.

The important point is that none of these steps are beyond the ability of the average business owner. A trait that entrepreneurs have to guard against, however, is the temptation to skip the third step – even when they’ve grown their companies to a point where they’ve hired a management team.

And, by the way, when I think I’ve looked at both sides of an argument for long enough, I recall advice I was given many, many years ago. A good decision is commendable; a bad decision is regrettable; but no decision at all is unforgivable.

Then I just do it.

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¹ “What the Best Decision Makers Do”, HBR Blog Network, 24 Oct 13
http://blogs.hbr.org/2013/10/what-the-best-decision-makers-do/

 

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

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5 Tips For Ensuring A Smooth Transition In Ownership

Tuesday, March 18th, 2014

There are 3 things that a business owner must do to ensure their exit plan goes well. The first is to pick the right buyer – and I talked about that last week.5 things that will help make the transition to the new owner go smoothly

The second is to make the transition to the new owner silky smooth. Here are 5 things that can be done to make that happen.

1.  Identify the stakeholders. Regardless of whether the company is sold to a 3rd party, members of the management team or to a family member, there are 5 groups of people who will be affected.

They are the employees; customers; suppliers; bank or other investors; and family members.

And there may be a sixth – a “regular” or Advisory Board.

2.  Communicate with them. There is some information they will all need to be given. But there is some that only has to be shared with specific group(s).

And the method, e.g. face-to-face or in writing – and timing of the communication will vary.

3.  Time the transition well. Ideally that would be:

  • When the economy is forecast to do well.
  • After 3 years of good results.
  • When the seller is still in good health.
  • At a time of year that is not the company’s busiest period.

4.  Plan and project manage it. Many ‘baby boomer’ owners seem determined to avoid thinking about their exit until the last moment. That creates problems from a tax planning, and every other, point of view.

Careful planning is vital when one family member is to be chosen over others. It takes time to assess business acumen and to design and implement a development program.

5.  Anticipate the 3 things that will happen during the transition. The first is that productivity will go down. People will be preoccupied trying to guess what the future holds and what the change means for them.

Not everyone will be happy. Some key employees may leave and, worse, some family members will feel slighted.

Finally, there may be more mistakes because people are distracted. And there are unexpected problems at every other time, so it’s logical to expect them during the transition.

Most business owners will only sell one business during their life. And there are very few other things they will do only once.

Doesn’t that make putting time and effort into getting it right seem like common sense?

 

If you enjoyed this post you’ll also enjoy Being Profitable and Strong Increases Valuation

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

6 Tips For Finding The Right Buyer

Tuesday, March 11th, 2014

Last week I was one of three speakers at the Toronto Star’s Small Business Club event, “Exit and Succession Planning”.Finding the right buyer or successor for your business

My talk included 6 things a business owner can do to ensure she/he finds the right buyer or successor.

1.  Money. The seller must be satisfied that the buyer has the funds to complete the transaction.

In a sale to a third party, for example, the seller must obtain evidence – from a bank or accountant – that the buyer can meet their commitments.

But having money isn’t enough – particularly if part of the purchase price is to be paid from future profits.

2.  Knowledge of the Industry. The better a buyer’s knowledge of the industry, the more likely the transition will succeed.

In a Management Buy Out (MBO) or family succession, the current owner knows the key players’ level of knowledge.

If the owner has been planning ahead, they will, for example, have given the players opportunities to build relationships in industry associations.

3.  Business Acumen. The purchaser or successor must have proven they know how to make money.

For example, a third-party buyer may have been a successful CEO or owned other businesses. A family member may have done well for a company in another industry or country.

4.  Appetite for Risk. When you’re watching someone else run a company it’s easy to underestimate the risks they are taking.

For example, as an MBO progresses, the management team begin to understand fully the risks that come with ownership.

That’s one reason why MBO’s collapse more frequently than sales to third parties or transfers to family members.

5.  People Skills. A seller must look for evidence that a third-party purchaser has successfully led people and built strong relationships with customers and suppliers.

By planning for an MBO or transfer to a family member, the owner can give the key players opportunities to prove their capability.

6.  Business/Strategic Plan. Regardless whose it is, a business plan has to pass 4 tests.

  • Don’t attempt too much too quickly.
  • Have clear Action Plans to ensure implementation.
  • Provide adequate resources to support the Action Plans.
  • Have a clear follow up and review process.

Hopefully they’re all common sense. If so, the transition will go well – and the party can begin!

 

If you enjoyed this post you’ll also enjoy Don’t Destroy the Long Term Value of Your Company……

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

Slow and Steady Growth Is The Key To Success

Tuesday, March 4th, 2014

My last post introduced Inc. magazine’s study of over 100,000 U.S.-based, mid-size companies.The key to success is slow and steady growth

Their goal was to find “sustained growth champions”, which they defined as companies that added head count each year from 2007 – 2012.

Less than 1.5% of the companies qualified.

The magazine selected a sub-sample of those to help them find the managerial DNA of success, and called it The Build 100.

According to Inc., companies grow in different ways. They might, for example:

  • Have several years of expansion before their growth rate slows and then declines.
  • Grow sporadically either with the economy or industry, or as a result of the business owner taking, or missing, opportunities.
  • Grow quickly and then plateau.

The Build 100 companies didn’t, however, do any of those things. They grew slowly and steadily.

The conclusion being that incremental growth, repeated over time, achieves better results than short – or long – bursts of growth.

And that finding corresponds closely with what Jim Collins and Morten Hansen found when they were researching “Great By Choice”.

Collins and Morten describe how John Brown, the CEO of Stryker, set a goal of 20% growth in net income – no more, no less – every year.

Was he successful?

A $ invested in Stryker from its IPO in 1979 until 2002, multiplied more than 350 times. The return on a $ invested in a comparable competitor fell well below that.

Let’s go back to the Inc. project. They studied companies over a 20-year period and found 3 very interesting things.

  • The faster a company grew in one period the less likely it was to grow again – and the more likely it was to fail. (Why? Perhaps because they stretched their processes, resources and everything else too far and either ‘broke’ them or had to do some serious repair work.
  • Growth over several periods had no influence on the odds of future survival or growth.
  • The more frequently a company added people (head count) year over year, the more likely it was to grow again.

I find that last point particularly interesting. Remember 3 of the 5 things the Build 100 have in common are related to employees. Is the timely addition of people who “fit” a key to fuelling steady growth?

What do you think?

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

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