Category Archives: Uncategorized

10 Reasons Why the Odds are Stacked against You When You Decide to Sell Your Company

The law of supply and demand is in full force when it comes to the likelihood that most private company owners will be able to sell their company at all or else, sell it for anything close to the value they expect to receive.

The following compelling, if not overwhelming statistics come from the likes of Pepperdine University’s Private Capital Markets Project, Price Coopers Waterhouse, The Exit Planning Institute, INC. Magazine and the Small Business Administration.

14808615_s (2)

Every one of these metrics is working against company owners’ ability to sell or even transition their company to the next generation.

  • Over 10,000 baby boomers turn 65 every day.
  • People age 55 and older own over 30% of all companies with employees.
  • Over the next 12 to 15 years, over 8 million companies will be sold
  • Or, looked at another way, 35% of businesses are owned by people over age 65.
  • The average business owner retires at age 71. What do they do if they have no buyer at that time?
  • 83% of business owners want to see their business continue on.
  • 80% of businesses will never sell. They will simply wind down and close their doors.
  • Only about 33% of boomer companies successfully transition to the second generation.
  • Worse, only about 13% of boomer companies successfully transition to a third generation.
  • Even now, in one study, only 8% of companies listed for sale today with revenues under $30 million will actually ever sell.
  • A 3 to 5 year exit planning window is ideal but a minimum of two years is a must. Way too many business owners simply wake up one day, decide to sell and are then shocked to find out what their company isn’t worth or that no one will buy it.
  • Finally, only about 13% of company owners have any kind of exit plan or timetable in place.

With these overwhelmingly unfavorable metrics amounting to terrible odds for a successful exit, it is frightening that only about 5% of business owners actually know the accurate value of their company. Value expectations are frequently wildly above market and they count on that windfall to finance their retirement. Then, they rarely calculate the net effect of that windfall after deducting the rapidly escalating impact of taxes.

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.

 

 

1 Critical Management Trait Company Owners Need to Maximize Exit Value

Entrepreneurs, successors in family businesses and the vast majority of private company owners share one common trait.

They are extremely independent, driven by their vision of the business they’ve developed or the business they are charged with sustaining by those who blazed the business trail before them.

This independence and drive is both a blessing and a curse. These attributes are often solely responsible for the success and the growth of the business.

But, when it’s time to sell the company or transition the business to another family member, those autocratic traits most often drive business value down. And sometimes, make the business completely unsellable.

The single most critical management trait that a private company owner can develop is the ability to delegate.

So many company owners, through no deliberate intention, become the only knowledge keeper in the company. And worse, they become the sole owner of key customer relationships.

11418095_s (2)

They are so head-down and hands-on in their business, they give no thought or credence to dispersing authority, developing bench talent or allow others on the management team to assume responsibility through deliberate and effective delegation.

Owners simply don’t understand how this lack of delegation and management depth damages their business’ value. They don’t see their own company through the eyes of a buyer. A buyer quickly identifies the risks involved with buying the company. They see that owner ready to walk away with the vast majority of critical business knowledge and even worse, the core customer relationships.

At Capitus Group, we see and hear about this scenario on a regular basis. We quite often assess talent, recommend proactive management delegation and regularly promote the concept of bringing in a successor well in advance—at least 2 to 3 years– of the owners’ exit.

Many owners readily balk at this idea. They only see the cost of hiring that critical number 2 manager. They don’t understand that investing say $100,000 in a new manager today can result in value creation many times that. There are many cases where the return on that investment is 5 or even 10 times the cost of the investment.

Or, in the worst cases, the investment in a successor can make the company sellable when it otherwise would have languished with no buyer and no exit or value creation event for the owner. Ever! It happens all the time. In fact, recent statistics from the SBA show that over 300 businesses shut their doors for good every day because they have no buyer.

Effective delegation coupled with a sustained succession plan is a critical skill for every company owner to develop and perfect.

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.

 

6 Things Artists & Entrepreneurs Share but that Neither Would Like to Admit

Recently, I was interviewed by a writer who is preparing a book about business executives who evolve their careers beyond their traditional core profession. Over 90 minutes, we discussed a wide range of topics including my management consulting practice with Capitus Group. We also discussed hobbies and my plans to launch a new business based on a long-standing personal passion and interest in health and fitness.

As we talked, I began to realize just how much my work launching a company has in common with my occasional hobby as a painter.

Several years ago, I guess you could say, I became a painter. I chose painting because I decided it was time to start a hobby. I’ve always had an interest in art so I decided to try my hand at abstract painting. That seemed a safe choice.

As I stare at each blank canvas, I realize a sense of discomfort in the process. It’s very similar to staring at a blank piece of paper before beginning to write. Only worse. With paper, you can easily hit delete.

Then in recent months, as I work on the process of launching a new company, I have experienced that same sense of discomfort but until the interview, had not correlated the common challenges that art and starting a company have in common. They are very much the same.

Perspective and Tales from the Executive Trenches

Head Noise

This is probably not something that many artists especially would care to admit.

  1. Both artists an entrepreneurs begin with a blank canvass.
  2. Each in their own way, they must take, embrace and control risk.
  3. The painting and start-up process are highly creative endeavors. In each case, everything is new. Everything has to be invented. Each involves a tremendous amount of original thought which is ironically the most uncomfortable yet rewarding part of the journey.
  4. Both are highly motivated by an innate fear of failure. Sometimes, this fear is far more powerful than the satisfaction and rewards of success.
  5. Each discipline requires a plan. Artists need a vision for what they hope to achieve and some even add more structure by creating a grid to build on. Entrepreneurs, of course need a business plan created to achieve their business objective.
  6. Entrepreneurs and artists both must follow rules. Artists follow rules of color, balance, scale and style. In business, we follow the rules and constraints involved in the disciplines of budgeting, marketing, sales, personnel management and much more.

At the end of the day, both must attract and please a customer for that is the final arbiter of success

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.

 

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.

28699545_s (2)

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:

RewardJustAhead-Apex blogpost 4-13-15

  • 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.

26047287_s (2)

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.

 

 

Thinking about transitioning from your business?

 

The following is a guest blog written by David Raden, founding partner of the Capitus Group.  The Capitus Group specializes in working with business owners to help them through both the technical and intangible challenges involved during a transition or sale of a business.  In the case of a sale, the team works with owners to maximize valuation prior to any transaction.

Do you understand how to plan for this critical life change?

In a recent article, I provided an overview of a 4-Step Transition Plan for your business:

    • Discovery

  • Options Assessment

    • Strategy Selection
    • Plan Execution
    Based on an overwhelming and growing amount of compelling research and statistics, as well as my personal experience, it is my opinion that business owners need a Transition Plan. They need to plan whether or not they are currently interested in some form of transition, business exit or sale. There is an extraordinary level of risk in not addressing this process well in advance of any action!

 

According to the Mass Mutual American Family Business Survey 2007/2012:

  • By 2017, it is estimated that up to 40% of family business owners expect to retire. This trend will create a significant transition of business ownership in the US.
  • Less than half of business owners who expect to retire in the next five years have selected a successor.
  • Nearly a third of family business owners (31.4%) have no estate plan beyond a will.

At Capitus Group, the first step we use to develop a business Transition Plan is Discovery. This initial step addresses both personal and corporate goal delineation.

Many times, owners fail to examine how selling or transitioning out of their company can impact personal emotions along with issues related to identity, meaning and purpose for life after leaving their company. So, in this post, I will focus only on personal goal delineation and execution post transition.

 

Perspective and Tales from the Executive Trenches

Head Noise

The Successful Transition Planning Institute in 2011 stated that “Owners who do not create a transition plan for their lives after they leave their companies often fall into a void, become bored, depressed, get divorced and die prematurely.” As someone who has sold companies and tried unsuccessfully to retire twice, I think there is a lot of truth in this statement.

Jack Beauregard in his book, Finding Your new Owner-STPI Press 2011 believes that truly understanding what makes up your identity is a good place to start to plan for life after a transition. He suggests that business owners formally answer questions about yourself like some of the following:

  • What do I like about myself?
  • What gives my life meaning?
  • What are my shortcomings?
  • What good (& bad) things have other people said to me over the years?
  • What will people think about my value after I transition out of my company?
  • What do I like doing?
  • What am I good at both in and out of work?

I might add that asking spouses or significant others some of these questions about you may also give clarity.

These are just a few issues to consider regarding your new Post-Ownership identity.

The next step in this journey is to develop a Vision of your personal future. Mr. Beauregard offers some very revealing questions. Those answers are critical in a business owner’s personal goal delineation and execution in order to successfully transition to their “new life”.

I propose that working on this before an exit is extremely important. Examples can include your view of the future in the following areas:

  • Physical Health & Activity Levels
  • Intellectual Stimulation
  • Recreational/Creative Activity
  • Activity with Your Spouse
  • Activity with your Family
  • Physical Residence
  • Social Connections
  • Other Income Producing Work
  • Volunteer/Philanthropic Activity

Most business owners have dedicated their life’s work and poured their heart and soul into their companies. Most, hopefully, have taken the time to develop and execute a strategic business plan. However many surveys have shown that they haven’t spent much, if any, time formally developing a plan for life after their company.

One of my clients, after true introspection, realized that he didn’t really want to sell but rather just needed a little more time away from the day-to-day hassles. He wasn’t emotionally ready to leave. After formalizing his personal Vision, he pulled the plug on his divestiture path and began to re-organize his corporate organization chart. He made the decision to invest in his future by adding a management position and hiring a COO.

In conclusion, the most important first step of any transition plan process is (1) understanding ownership’s underlying emotions (& potentially fears) (2) development of clear personal goals and a vision for your future life and (3) willingness to formalize and implement a plan to get there. Be honest with yourself and get help from professional advisors experienced in business transition to help objectively guide you to successfully reach your goals.

David T. Raden

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.

 

 

3 Theories of Board Management in Privately Held Companies

During most meetings with clients and prospective clients, the topic of board meetings comes up. It happened this morning during a breakfast meeting.

It’s really rather interesting, what CEOs have to say about their philosophy of dealing with boards. They seem to fall into 3 camps.

This camp is probably the least controversial. These CEOs own their company outright. There’s no question who is in control. At most, they may have a handful of minor investors. These executives have the self-confidence and vision to know that a group of expert advisors can be a tremendous asset. Experts can offer perspective, a dissenting opinion to force the CEO to think through his/her decisions. Or, they can bring skills and expertise to the table that compliment and bolster the CEOs own skills. The end result is a better run and more successful company.

The second camp are those CEOs who run companies owned by either outside investors or a large contingent of internal and external shareholders. They generally own a sizeable chunk of the business but may not be majority owner. Their board is generally not hostile but not always made up of members with significant business skills or special expertise. They are mostly friends or family. These board members strive to over communicate. A significant percentage of their time is spent simply schmoozing board members, making phone calls and sending emails with updates. The end result is that by the time the quarterly board meetings roll around, there is little new to say. Meetings rarely seem to last very long.

23713621_s (2)

The final camp is really split into two sub camps. In either case, the CEO is a shareholder but the majority of the business is owned by outside interests and the environment is often confrontational or even caustic. Within this stressed environment, one type of CEO most often mirrors the CEO in Camp 2. He/she strives to communicate on a regular basis and spends massive amounts of time preparing and documenting facts and trends prior to board meetings. The second sub camp is run by CEOs who are total control freaks. They communicate with board members infrequently, if at all in between board meetings. During board meetings, they provide cursory information and present financials and other business details at only the highest level. They are not above something close to bullying board members to avoid protracted discussions. They believe the less the board knows, the better.

This last style has always fascinated me. I am surprised that any board would tolerate that commandeering style with limited presentations and receive even less information about the business, especially the financials.

In all cases, I often ask how long board meetings run. The usual answer is about 90 minutes to 4 hours.

When I hear that, I am envious. It reminds me of the Head Noise that I experienced years ago chairing a board that was comprised of partners from two private equity firms. These guys had radically different styles, philosophies and expectations as to what should be presented in a board meeting. The two firms often clashed during our meetings. One firm was filled with micro managers. The other firm was filled with big picture people. They drove each other crazy. Consequently, it made for a high-stress and exhausting preparation process and experience. We ran as organized and disciplined a meeting as possible. But often, I found myself in referee mode. Other times, I was the punching bag.

My management team and I devoted at least one solid week to preparation of board materials. Our board books would range from 75 pages to probably 200 pages on a regular basis. We’d rehearse, play devil’s advocate and have back up charts behind back up charts. We could have dozens and dozens of back up charts waiting in the wings to answer some question coming from some board members. Heaven forbid when we didn’t have an answer on the spot.

Consequently, our board meetings were all consuming. On a good day, they’d last 6 hours non-stop with no official breaks and an eat-while-you-work lunch. On a bad day, they’d easily run 8 hours and were known to go as long as 10. We were thankful for inflexible airline schedules. That hard stop was usually the one thing that would force the end of a meeting. People had to make flights.

In my opinion, there was virtually no value in these time consuming, demanding and high stress meetings. It forced us to spend our time in non-productive ways. The only possible benefit is that we did know our business inside and out.  If it’s important to know why someone was $500 overspent on T&E this month.

What is your experience with board meetings? Which style of board management is best? How long should meetings last?

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.

 

 

The most recent edition of a local business newspaper contained a full-page ad about how business owners can achieve a smooth ownership transition. The ad was placed by a bank and featured their expert who helps owners plan for transition.

There’s only one problem. This article, like a countless number of virtually identical articles before it don’t give the owner one single piece of advice about how to actually plan for and execute a transition.

Instead, every one of these articles recite the obvious. They list the options for what an owner can do with his/her business when it’s time to leave. They can…

  • Sell the business outright in either an auction or a private sale to another company or senior managers
  • Transition the company to next generation family members
  • Set up an employee ESOP
  • Close the business and liquidate the assets (most “experts” don’t list this option because they derive no benefit)When the owner wants to retire/quit/get out, these are the only options. However, many experts also count two additional options in this group which really aren’t options for the owner who wants to be done with the business. More and more, that’s what we at Capitus hear that owners want to do. So many owners state that they are tired and/or burnt out and they simply want out.The other two options often counted as exit strategies include:
  • Recapitalize the business. This is bank-speak for loading debt on the business and taking that cash out of the business. But, the owner still has to run the business, now with more stress to cover the bank debt payments.
  • Partner with private equity. For the owner who wants to sweep cash off the table and stay in the game or who has a longer time horizon for retirement (usually 5 years or so), this can be a great option. This is not, however, an option for the owner who wants to exit ASAP. PE guys will want the owner to stay as a key condition for doing the deal. This is also rarely an option for companies with under at least $1 million in EBITDA, usually more.

9077730_s (2)

Now, what the experts don’t tell you but should:

  • They actually won’t help you. 99% of bankers have zero, zip, zilch, nadda experience actually running companies. They’ve never been a CEO. Never scrapped and clawed to make payroll. Never laid awake at night worrying about cash flow or inventory levels. They don’t dig in and get their hands dirty working side-by-side with you to figure out how to prepare the business for sale.
  • Selling or transitioning a company is an immensely time-consuming and stressful job. In fact, it is a full-time job in and of itself. Since most small companies are strapped for manpower, this job falls almost solely on the owner.
  • Selling a company is entirely different from selling the products created by the company and this job requires a very different skill set.
  • It takes a village. So many owners want to be penny-wise and pound foolish by managing the entire process rather than invest in the use of experts. By doing so, they almost always leave money on the table. We’ve seen cases where the owner/seller could have reaped a 10 to 20 time ROI on the cost of hiring experts and realizing a higher valuation. Equally as important, someone needs to quarterback this group of experts to keep them all on the same track and timetable. Most owners don’t have the time or experience to do this.
  • It takes at least a year and, ideally, several years to properly prepare a company for sale or transition in order to maximize value or optimize the transition process.
  • There are experts who are ready, willing and able to literally roll up their sleeves and work side-by-side in the business on a regular basis –even a daily basis if necessary– to help a business owner achieve his/her goals. This also allows the owner to continue to focus on running and growing the core business. Too many times, the owner who is trying to sell his/her company is forced to take his/her eye off the ball at a critical time. They can easily end up seeing a business decline resulting in reduced value.Selling a company is a demanding and emotional process.

Owners deserve to take that exit or transition journey with trusted advisors who can work side-by-side with the owner, relieve the workload and stress and provide an objective sounding board.

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.

 

Pay Peanuts, Get Monkeys

For 15 years of my career, I had the tremendous good fortune to work for a brilliant, disciplined and tough businessman. He was the chairman of our parent company in New York. His name was William F. Reilly. He was a self-made man. Harvard MBA, military paratrooper and a corporate executive who rose through the ranks and to the top of several major companies.

Sadly, he is no longer with us but he lives on in spirit, through guiding principles and in the approach to business that he lectured on, cajoled, directed, mandated and taught to so many from his management team.

He had many amazing theories, philosophies and business practices. He was known for certain sayings and business axioms. He had absolutely no tolerance for smoke and mirrors, BS and obfuscation. He could see through it and cut through it all with the precision of a surgeon with a scalpel.

When you went into a meeting with Bill, you damn well better know your business inside and out or be prepared to be skewered with questions and follow-up assignments. In fact, working for Bill was like going through an MBA program on steroids with the equivalent of pop quizzes and essays presented at any time.

In my experience his approach to business was insightful, to the point and often brilliant its practicality. He dealt in reality, not pie-in-the-sky theory as contained in so many business books.

14808615_s (2)

One of his pet business principles related to people. I.e. talent. He would often dig deep into the performance of your managers and their teams. This was the case for business units and brands that were doing well. It was an even deeper dive and grilling when there were business challenges. He wanted to know about the team. He wanted to know if you knew about your team. Were they the right people? Were they in the right job? Were they motivated? And, among many other criteria, were they properly compensated? At least within the scope of similar positions in the industry. Oh, and you were expected to know that answer so one had to stay up-to-speed on all the industry salary surveys and be prepared to benchmark your people against the data.

On the topic of compensation, his theory was “pay peanuts, get monkeys”. To Bill, it was not a badge of honor for a manager to have hired an employee for a bargain. He believed that, within reason and reflective of market dynamics, you had to pay for top talent. When you didn’t, you got what you paid for. If you had a manager who was underperforming and he/she was underpaid, it was you, not that person who was on the hot seat. Essentially, he figured that you had received the performance that you paid for.

Bill’s theory on compensation and talent have resonated with me throughout my career. From time-to-time, I see or hear situations in client businesses that validate Bill’s theory. I readily share it with them. With full attribution, of course.

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.