Monthly Archives: April 2015

Hire for Skill, Fire for Fit

I recently had lunch with an inspirational business owner who clearly bucks a pervasive trend in business today. This trend is best characterized by the headline of this Head Noise Blog. Hire for Skill, Fire for Fit.

Scott Havens, a consummate connector and business development exec with the Power Group recently introduced me to Scott Carson, President of Blue Ocean Consulting. We met over a casual lunch. Scott Carson’s firm is an IT consulting and software development company.

However, Scott’s background is far from the technology industry. He earned his stripes in the rental car and fleet management industry. Worked his way up the ranks and honed the soft management skills and business disciplines over many years.

His business experience in sectors completely outside of technology, coupled with his proven ability to lead a talented team, identify customer needs, position and market the company’s products and services have resulted in a business with an impressive growth trajectory just since he took over. And just think of it, Scott can’t write even one single line of code!

He was fortunate to have been found by a business owner with an understanding of the big picture and the value of a broader set of management skills than simply those intricately tuned to the IT or technology market or industry.

“Everyone wants a unicorn”

It’s a well-kept secret.   Headhunters know it. And they often benefit from it by gaining repeat searches. Hiring managers create exacting criteria when they are in search of new talent.   In fact, as one headhunter explained it has reached the point that, “everyone wants a unicorn.”

Hiring managers don’t want the responsibility of assessing the intangible. So, they hire for easily identifiable skills that can be readily validated. They are so singularly focused on skills and industry-specific experience, they ignore the fit and they ignore or dramatically discount the most essential traits required to successfully manage. And, that often determines the fate of that new hire. They end up being fired for fit.

One of the most high profile examples of this hire for skill philosophy was Time Inc.’s hiring and firing of Jack Griffin as CEO of Time’s magazine business several years ago.   Griffin was impressive and highly regarded as CEO of Meredith Publishing. He had all of the industry experience. But, his management style inside the Time Inc. building was a bad match. Talent began to exodus almost immediately. Morale plunged. Griffin, a proven senior executive was fired after just 6 months on the job. He had deep industry experience but he clearly did not fit.

Tightly defined skills and very narrowly defined industry experience criteria have become so exacting in the search specs that it becomes nearly impossible to find that one perfect person with the laundry list of skills and they instantly rule out candidates with tremendous potential, not to mention the motivation and desire to perform. Searches get extended and completely impersonal data driven HR systems with their algorithms that depend on key word searches exclude nearly every candidate.

Then, when the unicorn is found, they are blindly hired because it is so hard to find someone who fits the stringent mold.

Accordingly, the soft skills in the majority of these cases seem to take a back seat and have little if any value. That is, until hiring managers realize that experience and those skills do have value.

That is when it is usually too late.

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Hiring managers suddenly discover these skills when their new or recently hired unicorn who has 20+ years of experience manufacturing red widgets for the automotive ball bearing industry in an autonomous plant containing certain specialized machinery, a workforce with over 50 either union or non-union employees, a title of VP or greater for at least 10 years, budget responsibility of $XX million or more, a degree in quantum physics plus an MBA from only an Ivy League school, proven experience growing revenue by a minimum of 20% or more for the last 10 years (including through the 2007-2011 recession) begins to create a disruptive and non-productive work environment. Hiring managers wake up when talent begins to flee and sales begin to decline.

In that typical search process, no one valued the intangible skills. No one evaluated the candidate’s management style or his/her chemistry with the type of workforce in place. Does the manager have a vision and can he/she sell it? Can he/she lead versus manage? How do they communicate? How do they deal with morale problems? How do they interface with clients or customers?   Can he/she sell? Do they have an innate sense of marketing and advertising and brand positioning? Does he/she comprehend and know how to leverage social media?

Maybe most important of all, how do they recruit, motivate and retain talent.

Virtually none of these traits seem to matter in the search process today. HR systems that vigorously screen out all but the unicorns completely fail to assess or place value on the answers to any of those questions not to mention old fashioned traits like heart, honesty, integrity, empathy, leadership or work ethic.

Execs like Scott Carson with Blue Ocean prove the fact that companies are missing the boat. They are not maximizing business opportunity when because they devalue innate management skills as well as those skills honed over a career.

Most ironic of all is the fact that the market and industry-specific experience that they so ardently prioritize are by far more easily learned than the traits the ascribe litte or no value to!

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

Planning Ahead for Higher Value

This week’s Head Noise is presented as a guest blog by Doug Hubler, CEO of Apex Business Advisors.  Apex has been providing business sales, merger and acquisition services since 1998 to help guide business owners through the completion of a successful transaction.  The Head Noise editors present this post based on its valuable advice for business owners.

Small business thinking leads to small business value. Thinking as a big company will likely lead to an increase in value. Some simple things to implement now, long before you are even considering selling, that can tremendously impact the value and marketability of your business include:

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  • Financial record keeping. Quit using the company checkbook as a guide to financial health and analysis! Implement and utilize a consistent and intuitive bookkeeping system such as QuickBooks.  Clean books are essential to calculating value.
  • Management team/delegation. While an owner who does everything and puts in a 60 or 70 hour work week may save on overhead, a buyer will recognize this as a deficiency and will reduce their offer based on their perceived personnel needs. Make a move to add necessary staff now, delegate your workload, and shift your focus to working on the business.
  • Sales staff. Same as above. If the owner is the main sales person, a buyer will perceive a huge risk of losing clients in a transition.
  • Web presence. Seriously, no website?
  • Customer concentration. If only a few customers make up a large portion of the business volume, regardless of the margins, buyers will mitigate their risk of losing key customers by simply paying less for the company.
  • Separation of personal and business expenses. Stop paying personal expenses out of the business checkbook. Treating the business as a personal slush fund significantly complicates a buyer’s verification of business profitability. And reporting $5,000 in personal expenses on your business tax return may save you $1,500 in taxes, but it just nicked business value by about $15,000 or $20,000.
  • Seller Motivation. The business owner needs to be committed to the selling process. A “throw it out there for an outrageous price and let’s see what happens” mentality results in fewer interested buyers and in a final selling price that is lower than if the business had been priced and marketed appropriately from the start. Business owners should demonstrate to buyers that they are serious about smoothly transitioning their business by setting a reasonable asking price, providing accurate information, and responding expediently to questions and requests. Buyers will respond favorably.

These simple steps implemented long before the selling process begins can have a strong impact on business marketability and value. Which of these will you begin to implement right now?

Doug Hubler President

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me, Cameron Bishop at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

 

The Top 4 Mistakes Business Owners Make Before Selling Their Company

We see it over and over again. And, when we don’t see it firsthand, we hear about it from bankers, lawyers, accountants, CPAs and wealth managers.

In every instance, the person telling the story is slowly shaking their head in mild disbelief.

So, what 4 mistakes do they repeatedly see and why are they mistakes.

1). They don’t plan for their exit

Business owners most often wake up one morning, usually burnt out or just tired and decide it’s time to sell. Right now. Not a year, two or even optimally 3 years from now. But, right now.

Case in point. A banker tells the story of a business owner and client who walked into the bank one day and said he’d quit. Closed up shop. The banker was stunned. There had been no notice or previous conversation on the subject. The owner extracted no value from his company. Worse, the banker located a competitor who would willingly buy the company so he called the owner within just days of hearing the news. The owner told him it was too late. He’d called all his clients and told them he was done.

2). They run their company for tax purposes

It makes perfect sense to run a company for tax purposes if you plan to own it for many years to come. Business owners typically flush all expenses through the company that they can to legally minimize profits for tax purposes. When those expenses provide an enhanced lifestyle for the owner, they are often called EOB—excess owner benefit. Further, they flush through huge capital expenditures which they often expense rather than capitalize.

That’s all good. Until you want to sell. Those accounting tricks greatly damage business valuation. The multiplier effect of valuing profits multiplied by a certain number serves to greatly exaggerate the value depletion. A quarter of a million dollars in these types of expenses can cost an owner easily $1 million or more in exit value!

3). They don’t have a senior management transition plan

It’s the nature of many business owners. The company was their vision. Their sweat and blood. And, most importantly, their knowledge and customer relationships. They call the shots. All of them or darn near. They are either the only or the most critical point of contact with customers. And, there’s no number two. Why? They either can’t handle the idea of turning over any responsibility. Or, more often, they don’t want to pay for it.

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What they don’t understand when it’s time to sell is that buyers hate this. Consequently, one of three things happens. The potential buyer walks away because he sees too much risk. The buyer proceeds with the deal but offers a greatly discounted price to reflect the risk he’s taking on. Or, he requires the owner to stay on for a significant period of time. That, ironically, is the opposite of what the seller wants because he/she wants out. Now.

4). They don’t have a life plan

Most business owners eat, sleep and breathe their company. It’s their life. It’s a 24X7 thing. Further, for many, it’s also a factor in their social status and ego validation. Their work gives their life real meaning. And, the demands allow for little time to develop hobbies, outside interests and a non-business-related social structure.

Ultimately, they’ve given little or no thought to what life will be like post sale of their company. All they can see is that they are burnt out, want out and they will have some cash in the bank. There’s no thought about what happens the day after the check hits the bank account.

Many become lost, disillusioned and either regret or resent their decision to have sold. They quickly realize that golf or fishing isn’t fun 5 days a week

It’s worth it on many levels to invest in planning for the future of your business and your life.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.