Do You Have a Sales Pipeline or a Pipedream in Your Organization?

This is a Guest Blog Post from Sales and Sales Management guru Chris Tully.

In recent blogs I’ve been writing a lot about the evolving market because it’s especially important in these conditions to have robust processes that lend confidence and set you up for success. When designed and operated properly, your Sales Pipeline is another key tool to serve in this purpose; a proxy to identify what’s going well and what’s not going well with your business. Your organization’s ability to scale is largely dependent on your ability to reliably forecast revenue, which really boils down to the quality and volume of data within your Pipeline. Setting up, leveraging, and monitoring this resource properly enables you to see performance against key metrics and accurately show where your business is headed.

However, there are stumbling blocks that many Owners and Sales Leaders face when they look to formalize their Sales Pipeline methodology. The primary misunderstanding I see is the belief that a Customer Relationship Management (CRM) system on its own will provide the on-target visibility desired. This, coupled with too many bells and whistles, makes it easy to lose sight of the primary role of a CRM, to support a well-thought-out Sales Strategy in the simplest method possible. Getting caught up in the technology can lead to a misstep where companies invest in a system without completing the fundamental steps of defining the underlying strategy and associated processes first. 

When designed correctly, process discipline will be reflected in Pipeline performance, but only if the right technology is being utilized and if the salespeople are engaging with the system properly. So, take a moment and ask yourself if you’re operating a solid Pipeline that gives you confidence, or a “PipeDREAM” that frustrates you because of missed forecast projections.

 

Over the years, when it comes to the Sales Pipeline, the key question I commonly hear Owners ask about is, “what’s the accuracy of the data and how do we know if we can rely on it?”   The interplay between people, process, technology, and continual inspection is the secret recipe that creates Pipeline data integrity (valuable, actionable data).    Let’s take a closer look at these main components that feed Pipeline data integrity, “the 4-legged stool” that should support every business.      

1. PEOPLE – Training to foster understanding, adoption, and accountability. Even the best process, procedure and technology will fail without user adoption. The starting point is investing in well-rounded training to help the Salespeople understand how the infrastructure will help them achieve their individual goals; the technology or CRM being just one component. From there, creating advocacy within the team after having the right level of executive sponsorship from the start is the way to achieve essential adoption. This is especially important to motivate potentially stubborn Salespeople who tend to be resistant to change.   Once you are assured that your Salespeople understand how to engage with your Pipeline methodology and see value in it, then it is practical to expect compliance. This will open the door to your Pipeline becoming a powerful diagnostic tool that will allow you to pinpoint underperformance problems that need correction.     

2. PROCESS – Solidifying  repeatable and scalable process/procedure. As leaders, we need to equip our sales teams with tools to guide their success. It is not reasonable to expect Sales Pipeline data integrity until we provide a proven Sales Process and guiding data procedures. When designed properly, these approaches will fuel confidence in new Salespeople and tenured veterans alike. This will naturally occur as they experience or see their colleagues experience that investing in the model generates predictable results.   To learn more about developing a robust Sales Process, read my previous blog:“How’s Your Sales Process Confidence Measuring Up to the Results It’s Generating?”   Guiding data procedures will address data quality around things like sales activity, customer information collection, opportunities that feed into the Sales Pipeline, etc. All these moving pieces work together to provide the Salespeople and Sales Leaders a powerful view into real-time performance indicators that can be leveraged to optimize results. This level of visibility will also prevent the undesirable but common problem in CRM systems of “garbage in, garbage out.”     

3. TECHNOLOGY – It’s not about more, it’s about simplicity. Your technology should make everyone’s lives simpler and more efficient. If you’re an Owner or Sales Leader, ask yourself, “do I have a simple and easy-to-understand dashboard at my fingertips that allows me visibility to see where my business is going?” The most important thing to note is that the best Customer Relationship Management (CRM) system is the one that gets used, helps your Salespeople succeed, and assists your leadership team in monitoring progress.   I come across companies that are still using Excel spreadsheets and notepads, and those that have fully integrated and advanced CRMs. In all cases, the first step is to define Sales Strategy and Metric Objectives so the technology can be aligned to the business requirements. Done properly, the technology isn’t the driver, it’s merely a vehicle to deliver on the business strategy. I often recommend scaling technology back to optimize adoption, a key contributor to data integrity. To get and keep users engaged, you will want to have the lightest possible technology structure that can deliver on key metrics.     

CRM Adoption Calls for LESS Bells & Whistles
1. Choose a technology that allows your Salespeople to see their productivity improve with its use so that you can avoid resistance to adoption.    2. Align technology to your requirements to create a user-friendly experience, as well as insightful data (clarity on your key measurements/metrics).   3. Make sure that you have only the technology that you need and nothing more.     4. INSPECTION – Tweaking and tuning to optimize data integrity. The fourth leg of the stool, Inspection, is the glue that makes Pipeline performance possible through the application of experienced Sales Leadership. It’s critical that the Owner or Sales Leader holding this seat monitors strategy execution and data integrity through routine Pipeline inspections. This, followed by targeted coaching with salespeople on an individual level, will fine tune sales skills and data entry compliance.  

As more data is available in your CRM system, your organization will benefit from the ability to consider history and trends; identify what’s working and what’s not. This will allow more runway to repair performance breakdowns before Sales Goal achievement becomes hindered. When Training, Process/Procedure, and Technology are all effectively designed and implemented, problem areas become easily identified through the Sales Pipeline. Diving in to inspect problem areas within a solid sales infrastructure will enable the Sales Leader to quickly diagnose root cause problems and apply the appropriate solution. Sales Performance will not be sustainable without ongoing Sales Leadership attention that embodies the full breadth of skills and activities needed to generate high-performance results.

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To assess the strength of your current Sales Leadership approach, review my prior blog:“Sales Leadership Impact on Your Business”

In closing, let’s recap – you want your Salespeople only working on prospects with the highest probability of closure. Your properly designed Sales Pipeline will serve as a diagnostic tool to identify sales performance problems if it’s built as the “4-legged stool” I outlined. Just remember, even the best process and system won’t be sustainable without ongoing, effective Sales Leadership.  

THOUGHT PROVOKING TRIVIA ANSWER 70% of CRM projects fail. *   The management of customers and potential customers is critical. However, a key component of a productive Customer Relationship Management (CRM) system is having a set strategy that the technology delivers upon.   I can help you avoid this misstep that results in a large CRM deployment failure rate. Schedule a time to chat.  *Source: Linkedin.com

About the Author  I am a part of a sub-group of Sales Xceleration Advisors dedicated to pooling our knowledge and expertise to generate insights, tips, and tools to help business leaders exponentially grow their revenue. We are seasoned  Executive Sales Leaders that have guided B2B businesses ranging from start-up to Fortune 500. I welcome any special requests you may have for future writing topics.

Chris Tully

Chris is the President of Sales Growth Advisors LLC, a sales consulting firm focused on increasing revenue growth and improving profitability.   He can be reached at chris@salesgrowthadvisor.com.

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Value Proposition and Covid: Is Your Premise Still Valid?

This is a Guest blog post from Ines LeBow.

 

Five hundred and sixty (560). That is how many commercial Chapter 11 filings occurred in April 2020, a 26% increase from the same time the year prior.

That is 560 data points proving that creating a value proposition is not a one-time deal, unless you want to be left behind as the market shifts and your business changes to meet those new market needs. Just consider the year 2020 as a microcosm for these shifts. The economy, technology, consumers, and nearly every market in every industry have changed significantly in a few short weeks because of the Covid pandemic.

Some of the companies are large brick-and-mortar retailers like J. Crew, Neiman Marcus, and JCPenney. The market had been trending to online sales for quite some time, yet they got complacent and continued with their legacy brick-and-mortar retail strategy. Coronavirus simply accelerated the consumer transition to e-commerce apparel shopping, leaving these iconic stores behind.

Earlier this year…January to be exact…which feels like a different time and a bygone era, I wrote an article on the essentials of the value proposition to tell an epic fundraising story (“Is Your Fundraising Story Epic? Blueprint: How to Open Doors to Funding Starts with the Value Proposition”). The fundamentals to create or reshape the value proposition still apply. After all, your company culture, your product, and, most of all, your why constitute the raw material for the destiny of your company. But how many of the 560 companies who filed for Chapter 11 in April could have avoided bankruptcy proceedings if they revisited their value proposition and evaluated some of the following questions:

• What is your “why”?
• Why is it your “why”?
• Is there still a need for your product or service? What problem does it solve for customers?
• Is there a better way to deliver your product or service for today’s market?
• Is your product still unique?
• Do customers inherently understand what your product is and how it helps them?
• Does your value proposition compel your target audience practically AND emotionally?
• Can your product or service transcend a crisis?
• The numbers tell the story…have you paid attention to your bottom line?

To learn more on how to create a winning value proposition at any company stage or as part of an effective 1-page executive summary and pitch deck, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro.

Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at www.linkedin.com/in/ineslebow, view the ETS website at www.transformationsolutions.pro, or email her directly at ilebow@transformationsolutions.pro.

 

 

 

Impact of new Lease Standards on Tech and Life Sciences Companies

This is a Guest blog post from Ling Zhang., CPA.

 

When the Financial Accounting Standards Board (FASB) met on May 20, 2020 to address the impacts of the COVID-19 pandemic, they voted on a one-year effective date deferral of Accounting Standards Codification (ASC) Topic 842, Leases, which will result in a modified effective date for private companies and certain private not-for-profit entities for fiscal years beginning after Dec. 15, 2021, and interim periods with fiscal years beginning after Dec. 15, 2022, once the final standard is issued (expected June 2020). Private companies in technology and life sciences, particularly with significant operating lease activity under current lease accounting guidance, can take advantage of the delayed ASC 842 effective date to prepare for implementation.  

FASB originally issued Accounting Standards Update (ASU) 2016-02 in February 2016. Accounting Standards Codification (ASC) Topic 842, Leases, along with several subsequently issued related ASUs, which amended the accounting guidance for leases.

GENERAL ASC 842 REQUIREMENTS

Under ASC 842, a company is required to recognize leases with terms greater than 12 months on its balance sheet. Specifically, lessees are required to recognize the following at lease commencement:

ASC 842 represents a change for operating leases that were historically considered “off balance sheet” obligations. FASB believes a balance sheet presentation of leases will provide a clearer view of a company’s future commitments with operating leases recognized on the balance sheet.

Under ASC 842, leases recorded on the balance sheet will be classified as either finance leases or operating leases, which will determine the presentation of the related expense in the income statement. Finance lease arrangements will result in depreciation and interest expense recorded each reporting period similar in manner to existing capital leases under legacy guidance. Operating lease ROU assets and liabilities will be amortized and accreted, respectively, to develop a straight-line rent expense presented as lease expense in the income statement.

SPECIFIC CONSIDERATIONS FOR TECHNOLOGY AND LIFE SCIENCES COMPANIES

The delayed ASC 842 effective date provides additional time for technology and life sciences companies to prepare for implementation. Specific considerations prior to implementation include:

1. Impact to Balance Sheet and Financial Ratios

Technology and life sciences companies should expect increases in balance sheet amounts (e.g., long-term assets and both current and long-term liabilities) for operating leases. Companies with significant existing operating leases may be surprised by the impact on reported balance sheet amounts. These financial statement changes may impact certain financial ratios, including current ratio, leverage ratio and debt service coverage ratios.

Example: How ASC 842 Can Affect Key Metrics

As many technology and life science companies use cash flow-based lending, the example below provides the potential effects on the balance sheet and the associated debt service coverage ratio. Some do not consider operating lease liabilities as ‘debt’ for purposes of calculating debt-based ratios and you can expect that there may be diversity in practice. Technology and life science companies should confirm with their lenders in advance their view of the treatment of ASC 842 operating lease liabilities with regard to covenant calculations.  Understanding the impact on key metrics early is advised. The following is an example showing the impact on certain ratios when operating lease liabilities are considered debt.

Balance Sheet Impact

Notice how the reporting of ROU assets and lease liabilities increases the total amount of assets and liabilities on the balance sheet after adopting the new standard.¹

Balance Sheet
	Prior to adopting ASC 842	After adopting ASC 842
Cash	$                    500,000	$                  500,000
Accounts receivable	750,000	750,000
Inventory	2,000,000	2,000,000
Total current assets	3,250,000	3,250,000
PPE	500,000	500,000
Capitalized software	1,500,000	1,500,000
Operating lease ROU asset	–	900,000
Total non-current assets	2,000,000	2,900,000
Total assets	5,250,000	6,150,000
Deferred revenue	$                 2,100,000	$               2,100,000
Accounts payable and accruals	550,000	550,000
Long-term debt, current	100,000	100,000
Operating lease liability, current	–	250,000
Total current liabilities	2,750,000	3,000,000
Long-term debt, net of current portion	400,000	400,000
Operating lease liability, net of current portion	–	650,000
Total non-current liabilities	400,000	1,050,000
Total liabilities	3,150,000	4,050,000
Equity	2,100,000	2,100,000
Total liabilities and equity	$                 5,250,000	$               6,150,000

1) In this example, it is assumed that the lease liability in an operating lease. However, if the lease liability was classified as a finance lease, the ROU asset could be included within PPE.

Debt Service Coverage Ratio Impact

Debt service ratio coverage is a common financial covenant found in debt agreements. As illustrated below, the ratio may significantly change with the adoption of the Standard.

Debt Service Coverage Ratio
	Prior to adopting ASC 842	After adopting ASC 842
Net income	500,000	500,000
Depreciation expense	50,000	50,000
Interest expense	20,000	20,000
	570,000	570,000
Interest expense	20,000	20,000
Current portion debt and capitalized leases	100,000	350,000
	120,000	370,000
Debt service coverage ratio	4.75	1.54

 

Many technology and life sciences companies may find that certain metrics and loan covenants are impacted due to the changes in the balance sheet as a result of adoption. Companies should give priority to their financial statement and disclosure changes for the purpose of maintaining compliance with their loan covenants. As previously discussed, companies should also engage in early communication with their lenders regarding the potential impact on financial covenants and whether the lenders will take these changes into consideration when analyzing the company’s performance.

2. Lease Population Completeness Considerations

During the ASC 842 transition, all leases should be identified. While many leases may seem straightforward, such as leases for real estate or equipment, others may be embedded within other service contracts. For example, a router that is utilized as part of an internet service arrangement may be considered a leased asset. By electing the package of three transition practical expedients, companies are allowed to not reassess the following:

• whether any expired or existing contracts are or contain leases;
• lease classification for any expired or existing leases; and
• indirect direct costs for any existing leases.

 

Embedded leases are commonly found in the following arrangements:

A lease exists if a contract conveys to a company the right to obtain substantially all of the economic benefits from use of the identified asset and the company directs the use of the identified asset. An identified asset must be physically distinct and specified in the contract. The existence of substitution rights may indicate a specific asset has not been identified. Under Topic 842, substantive substitution rights exist when a supplier has the practical ability to substitute alternative assets throughout the period of use, and the supplier would benefit economically from the exercise of its right to substitute the asset. When evaluating the existence of a lease, companies also need to assess if the use of the identified asset is significant. If another party’s use of the identified asset is more than insignificant, the contract does not convey control of the identified asset, therefore, the contract does not contain a lease.

 

The following are some examples where judgement and further analysis may be required to determine the presence of a lease component.

 

REVENUE CONTRACT WITH CUSTOMER – SUBSTITUTION RIGHT A: SaaS contract with hosting arrangement – identified asset without substantive substitution rights Facts: A software company enters into contracts with its customers to host software on the software company’s servers, each of which is designated to a specific customer. The contracts do not allow the software company to substitute the server for another one without consent of its customers.   Analysis: An embedded lease may exist (even without an explicit lease agreement) considering that the server is dedicated to a specific customer, and the software company does not have “substantive substitution” rights for the server.   B:  SaaS contract with use of equipment – identified asset with substantive substitution rights Facts: A company enters into a contract with a customer that includes SaaS services and the use of a designated computer medical cart through the term of the SaaS services. The company has the option to swap the medical cart with another one at any time.   Analysis: The Company can swap the medical cart with another one at any time during the term of the contract. Therefore, the “substantive substitution” rights criteria has been met, and the use of the computer medial cart is not considered a lease.

 

MEDICAL SUPPLIES PURCHASE CONTRACT – IDENTIFIED ASSET WITHOUT SUBSTANTIVE SUBSTITUTION RIGHTS Facts: A bio-tech company enters into a medical supplies contract, which requires the purchase of consumables and test kits for research and development purposes exclusively from this supplier for the term of five years. As part of the arrangement, the supplier also provides the equipment for testing at no charge. The equipment is installed and customized for the bio-tech company, and the contract does not allow the supplier to substitute another equipment without the approval of the bio-tech company.   Analysis: A lease may exist since the equipment is specified in the contract and designated to the bio-tech company; At the inception of the contract, the supplier does not have substantive substitution rights to the equipment and it is not feasible that the equipment can be easily substituted by the supplier.

 

INFORMATION TECHNOLOGY (IT) SERVICE CONTRACT – IDENTIFIED ASSET WITHOUT SUBSTANTIVE SUBSTITUTION RIGHTS Facts: A technology company enters into a network services and security agreement with an electronic data storage provider. The services are provided through a centralized data center and use a specified server (Server No. 9). The supplier maintains many identical servers in a single accessible location and determines, at inception of the contract, that it is permitted to and can easily substitute another server without the customer’s consent throughout the period of use.   Analysis: Based on the facts above, the vendor can interchange the underlying asset without the customer’s consent. As the asset is interchangeable in nature and service and is not dependent upon the specific asset, there is no lease based upon the “substantive substitution” rights criteria.

 

ADVERTISING CONTRACT – SIGNIFICANCE OF USE Facts: A company enters into a marketing services agreement which encompasses a variety of marketing and advertising vehicles, one of which includes electronic billboards.   Analysis: Although this contract could be written as a marketing services agreement, the right to use one or more billboards may result in a lease if the billboard is specifically identifiable and dedicated to the company, and the company obtains significant use of the billboards throughout the term of the contract. Understanding if other parties have the right to advertise on the billboards and the significance of those other arrangements will be important to determining if a lease exists.

 

Considerable judgement is involved for each example when reviewing a contract for embedded leases. A slight alteration in facts and circumstances may result in a different conclusion. Keep in mind that if there is a specifically identified asset dedicated to a party, it is likely to contain a lease. Further, predominance and significance of the activity will impact lease related decisions and conclusions.

 

3. Negotiation of Future Arrangements

The impact of ASC 842 may be an important factor in evaluating whether to structure the acquisition of assets as lease arrangements or purchase arrangements going forward. Further, Topic 842 may have implications on other accounting standards such as revenue recognition. The consideration of future arrangements will be particularly important for companies with significant lease activities as many such lease arrangements may move on to the balance sheet under the ASC 842. Technology and life sciences companies should identify and perform an inventory of all existing leases, including embedded leases, in conjunction with forecasting needs for future assets. The company can then evaluate and plan for these future needs with a clear understanding of the trade-offs between lease and purchase arrangements.

 

4. Tax Impact

ASC 842 will have a noticeable impact on financial reporting for lessees, but the effect on taxes may not be obvious. The new lease standard does not change lease accounting for federal income tax purposes. Therefore, without a corresponding change in tax basis, deferred tax accounting may be impacted. Implementation of ASC 842 could result in new deferred tax assets, liabilities or additional book to tax differences in a company’s income tax provision. Under ASC 842, lease assets are subject to impairment, which is often reversed for tax purposes. Technology and life sciences companies should understand and plan for the potential tax impact.

 

5. Assurance Perspective

Technology and life sciences companies audited by an independent public accounting firm should maintain relevant documentation of the ASC 842 implementation process, as the independent auditor may require the documentation in order to complete the audit. Such documentation should include evaluation of lease classification as finance or operating, selection and application of the transition method, discussion of any practical expedients applied, basis for significant assumptions such as discount rate and the company’s lease identification completeness procedures, including evaluation of embedded leases.

 

6. Future Operations, Processes and Related Controls

To comply with ASC 842, companies will likely need to implement changes to their current control environments and business processes. Companies should establish policies and procedures to address ongoing considerations such as initial assessments of new contracts, appropriate interest rates and lease modifications, as well as develop methods to appropriately capture financial disclosure information. Significant judgement will be required to assess lease terms through an ASC 842 lens, specifically related to lease term, allocation of lease payments to lease and non-lease components, and remeasurement events.

 

CONCLUSION

By delaying the effective date for non-public business entities, FASB has created an opportunity for technology and life sciences companies to fully consider the impact of ASC 842 and prepare for the upcoming transition.

 

As a Senior Manager in the DHG Technology practice, Ling Zhang, CPA, works closely with client management and C-suite executives to provide audit, financial accounting advisory, and risk advisory services to multi-national publicly-traded corporations and private companies with revenues ranging from $10 million to $50 billion. She advises clients on SEC filings, complex debt and equity transactions, merger and acquisition, new accounting guidance implementation, internal control system design and implementation, and financial statements reporting and disclosures. She can be reached at ling.zhang@dhg.com.

Leadership Transformation in 2020 – Change is inevitable. Transformation is by conscious choice.

This is a Guest blog post by Bei Ma, Founder and CEO of The Pinea Group

Leadership Transformation in 2020

Change is inevitable. Transformation is by conscious choice.

 

Photo by Evgeni Tcherkasski on Unsplash

 

As Bill Gates recommended 5 summer books in his recent Gates Notes on May 18, 2020, he wrote: “The Ride of a Lifetime, by Bob Iger. This is one of the best business books I’ve read in several years. Iger does a terrific job explaining what it’s really like to be the CEO of a large company. Whether you’re looking for business insights or just an entertaining read, I think anyone would enjoy his stories about overseeing Disney during one of the most transformative times in its history.”¹

Yes, indeed. Robert Iger, in his 2019 book “The Ride of a Lifetime”, shares in great detail on how the ten principles that strike him as necessary to true leadership have transformed Disney. And the ten principles are: Optimism, Courage, Focus, Decisiveness, Curiosity, Fairness, Thoughtfulness, Authenticity, Relentless Pursuit of Perfection, and Integrity.

While each of these ten principles speaks the truth of leadership, we need more, we need more for an unprecedented year we are in at this very moment. The year of 2020 perhaps manifests every aspect you can imagine that life does not always go the way you expect it will.

We are still in the middle of the global pandemic. Period. The director of National  Institute of Allergy and Infectious Diseases and the nation’s top infectious disease expert, Dr. Fauci spoke at BIO Digital virtual healthcare conference on June 10 that the coronavirus pandemic has turned out to be his “worst nightmare” and warned that it’s not over yet.²

Millions of people still have no jobs or steady income despite an optimistic labor report of May by the Department of Labor. According to Business Insider, US jobless claims totaled 44 million, meaning more than one in four American workers have lost a job during the pandemic.³

Social reform is well likely underway with the “Black Lives Matter” movement amid nationwide protests. New York Governor, Andrew Cuomo says he intends to sign the package of bills passed by New York legislators for comprehensive police reform.⁴

In the business context, CEOs have been facing an ultimate leadership test. While business executives shall absolutely continue to incorporate and implement in their daily business life the ten principles of true leadership by Robert Iger: Optimism, Courage, Focus, Decisiveness, Curiosity, Fairness, Thoughtfulness, Authenticity, Relentless Pursuit of Perfection, and Integrity, leadership transformation is imperative. CEOs must make conscious choices for leadership transformation facing one crisis after another in the year of 2020 and onward.

In this article, we explore two actions, accompanying mindset and qualities that can help executives navigate such perfect storms and future crises and consciously make leadership transformation.

Leading with Compassion

Numerous studies show that in a business-as-usual environment, compassionate leaders perform better and foster more loyalty and engagement by their teams.⁵ However, compassion becomes especially critical during a crisis.⁶

Four months into the pandemic, the nation is seeing a historic wave of widespread psychological trauma driven by fear, isolation, uncertainty, anger, and distress. Nearly half of Americans report the coronavirus crisis is harming their mental health, according to a Kaiser Family Foundation poll.⁷

To an organization, collective fears and existential threats triggered by the crises call for a compassionate, empathetic, caring and highly visible leadership. If executives demonstrate that everything is under control with business-as-usual meetings and overconfident emails with an  upbeat tone, afraid of showing the genuine vulnerability, empathy to connect and compassion to support their people, reduce their stress and burden, absurdly, this might backfire and will certainly not create the confidence, innovation and creativity from people to enable them navigate through the crises and recover the business.

       “I’ve learned that people will forget what you said, people will forget what you did, but people

       will never forget how you made them feel.”

       – Maya Angelou –

People feel it and will never forget when leaders act with genuine compassion, especially during the crises.

 

     Leading with Rooted Power

In routine emergencies, experience is perhaps the most valuable quality that leaders bring. But in novel, landscape-scale crises, character is of the utmost importance.⁸ Deliberate calm is the ability to detach from a fraught situation and think clearly about how one will navigate it.⁹

Crisis-resistant leaders, as the captains of their ships during a perfect storm, will be able to unify the teams with deliberate calm, clarity, and stableness, making a positive difference in people’s lives. The calmness comes from well-grounded individuals who possess rooted power of humility, hope, and tenacity.

Crisis-resistant leaders return to their roots, core values, beliefs, and principles during a perfect storm. They pose questions to themselves and teams about what the organization stands for, what the purpose is, and what should continue to do or stop doing, what need to be created as new practices or ways of working, new norms that are emerging.¹⁰

The rooted power of crisis-resistant leaders is originated from physical health providing energy and stamina; mental health providing optimistic and positive view; intellectual health providing acute decisiveness and clarity; and social health providing the trust and transparency.

Only grounded leaders with such rooted power can beat landscape-scale crises.

………………………………..

The crises and overwhelming consequences ask for leadership transformation. Besides the ten principles to true leadership¹, business leaders who make conscious transformation: leading with compassion and leading with rooted power, can support their organizations and communities, navigating through the perfect storms.

 

Reference

1. https://www.gatesnotes.com/About-Bill-Gates/Summer-Books-2020
2. https://www.today.com/health/dr-anthony-fauci-says-coronavirus-his-worst-nightmare-isn-t-t183838
3. https://www.businessinsider.com/us-weekly-jobless-claims-coronavirus-layoffs-unemployment-filings-economy-recession-2020-6
4. https://www.cnn.com/2020/06/10/us/new-york-passes-police-reform-bills/index.html
5. Jane E. Dutton, Ashley E. Hardin, and Kristina M. Workman, “Compassion at work,” Annual Review Organizational Psychology and Organizational Behavior, Volume 1, Number 1, 2014, pp. 277–304; Jacoba M. Lilius, et al, “Understanding compassion capability,” Human Relations, Volume 64, Number 7, 2011, pp. 873–99; Paquita C. De Zulueta, “Developing Compassionate Leadership in Health Care: An Integrative Review,” Journal of Healthcare Leadership, Volume 8, 2016, pp. 1–10.
6. Jane E. Dutton, et al, “Leading in times of trauma,” Harvard Business Review, Volume 80, Number 1, 2002, pp. 54–61; Edward H. Powley and Sandy Kristin Piderit, “Tending wounds: Elements of the organizational healing process,” Journal of Applied Behavioral Science, Volume 44, Number 1, 2008, pp. 134–49.
7. https://www.washingtonpost.com/health/2020/05/04/mental-health-coronavirus/
8. Gemma D’Auria and Aaron De Smet, McKinsey & Company, Organizational Practice, “Leadership in a crisis: Responding to the coronavirus outbreak and future challenges”, 2020.
9. Helio Fred Garcia, “Effective leadership response to crisis,” Strategy & Leadership, 2006, Volume 34, Number 1, pp. 4–10.
10. Adapted from Ronald Heifetz, Alexander Grashow, and Marty Linsky, “Leadership in a (permanent) crisis,” Harvard Business Review, July–August 2009, hbr.com

 

About the Author

 

Bei Ma is the founder and CEO of the Pinea Group (Pinea). Pinea serves as a trusted partner specialized in cross-border fund raising, market access, clinical studies, regulatory pathway, licensing, and distribution to help medical devices, diagnostics, pharmaceutical and biopharmaceutical organizations to achieve the best patient outcomes and commercial success.  Previously, Bei Ma served as Vice President of Global Healthcare Business Development at British Standards Institution (BSI) Group. Bei can be reached at 410.271.7267 and beimalong7@gmail.com; her LinkedIn profile is https://www.linkedin.com/in/beima/

How to Build a Company Culture That’s Sustainable in Any Market

This is a Guest blog post from Ines LeBow.

 

Herodotus, the ancient Greek intellectual who became known as “The Father of History” coined the phrase “Culture is King”. Companies rise and fall based on their culture, and challenging situations like we’ve faced here in 2020 test company culture to determine if it’s real or just a façade. In a recent article, I gave advice on how to “Pandemic-Proof Your Funding Pitch Deck”, but as an entrepreneur, are you really able to pandemic-proof your company culture? The answer is a resounding “yes”! In fact, you can create a culture that thrives in any market situation, including Covid and beyond.

 

Leadership-Driven Culture

 

How you, the entrepreneur, and the executive team lead at the outset of your business and through “normal” times sets the tone for your culture that will carry you through times that are trying. As Frances Hesselbein so succinctly put it, “Culture does not change because we desire to change it. Culture changes when the organization is transformed; the culture reflects the realities of people working together every day.”

 

For the leadership team that truly prioritizes the culture of their organization, there are a few core values that will be emphasized down the management ranks to the front-line employees and a call to have the actions of all personnel align with these values. The top core values include:

 

• Two-Way Communication – Consistent and ongoing opportunities for the executive team to interact with staff (both speaking and listening) and for all team members to interact with customers (again, both speaking and listening)
• Engagement – Fostering a sense of ownership and a common purpose throughout the organization to energize all employees and get them working toward a uniting vision
• Wellness and Balance – Setting policies that value employees’ work-life balance, mental and physical health, and general wellness
• Programs and Tools – Enacting programs and implementing tools that allow employees to thrive in personal and professional development, workplace collaboration, idea innovation, mobile and remote work setups, knowledge sharing, and more

 

 

The combination of forced and voluntary business shutdowns that occurred nearly overnight as a result of the Coronavirus response quickly led to 88% of companies that either required or encouraged their employees to work from home, according to a Gartner survey. Some companies were ill-prepared for this rapid shift. Many of the companies with the technical capabilities for hosting a truly remote workforce, however, lacked the type of culture that would keep employees engaged, communicating, and thriving when not in an in-person environment.

 

Having a great framework in place is essential and must include employees who come to a physical office location as well as employees who work from home, in the field, or from a remote office. As companies return to work, executives and board members are going to re-imaging how the company operates. The old approach of leasing large office spaces may alter significantly, causing companies to adopt a more aggressive mobile and remote work model. Re-thinking how these core values that contribute to the corporate culture can be dealt with is just as important to strategize over.

 

To learn more about creating an engaging culture or how to create an epic fundraising story for digital presentations to investors, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro.

 

Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at http://www.linkedin.com/in/ineslebow, view the ETS website at http://www.transformationsolutions.pro, or email her directly at ilebow@transformationsolutions.pro.

How to Hire a Stellar Sales Team to Accelerate Your Recovery

This is a Guest blog post by sales and sales management expert Chris Tully.

 

 

If there is a silver lining to the pandemic-related economic shut down, it is that a lot of excellent salespeople are now available and hungry to contribute to your business. The opportunity here is to rehire your best performers and then build a stronger team than before.

To hire a stellar sales team to accelerate your recovery, you need a plan. Here are some things to consider that will help you create an excellent hiring plan.

 

1. Are your business goals different than before the shut down? 

In the past few months, you’ve had time to really think about your company. You may have revised your strategic business plan and reprioritized your goals. If so, take a look at your new focus and figure out, “what sort of sales power will get me there?”

As an exercise, picture your previous sales team. Imagine how they would – or would not – achieve your new goals, and what sort of salespeople you need going forward.

 

2. Are you clear about the sales role?

What is it that you really want your ideal salesperson to do day to day, and accomplish overall? What specific skills would that person need? Most importantly, be clear about the personal attributes of the ideal person to represent your business.

3. Are you willing to invest in a professional recruiter? 

Sure, LinkedIn Jobs, Indeed, and other free job posts or low-cost ads will get responses. But you and your HR people will spend an inordinate amount of time sifting through a lot of junk to get to the few gems. Unless you’re adding entry-level people, don’t cheap out – invest in a professional recruiter, particularly if you’re looking for experienced sales professionals with a proven track record.

Talent recruiters screen against your hiring profile, verifycandidates’ work history, and validate their self-stated strengths and accomplishments. Recruiters also help you find employed candidates who are not looking for a job but who may be perfect for your business.

 

4. Do you have your sales incentive structure worked out?

Although it isn’t a jobseeker’s market right now, people are still going to ask how they get paid. That’s completely reasonable. As the job market strengthens, candidates who know their worth are going to hold out for appropriate compensation. In addition to your hiring plan, you’re going to need an incentive plan to attract and retain the caliber of salespeople you expect.

 

5. What third-party tool are you using to assess candidates?

Third-party assessment tools are a must with hiring decisions. Let’s face it – salespeople are often chameleons. They are trained to probe for needs, listen actively, and position their products (themselves, in this case) in the best possible light to solve your problem.

You need some objectivity to balance those impressions, especially if you don’t hire that many people each year. There has been a lot written about the cost of a bad hire, which I won’t repeat here. Get some help!

These are three salesperson assessment tools that I recommend: 

• Objective Management Group (OMG) Sales and Marketing Assessment
• Asher Strategies’ APQ Sales Assessment
• Predictive Index Hiring Assessment (very helpful across multiple professions)

6. Do you have an effective on-boarding process?

It’s important to have a well thought-out plan to get new sales hires acclimated to their role in your company. For that, you need to a road map that new hires can follow (as well as trainers) so nobody gets lost.

 

7. Can you “hire slow”?

This last question is a trick one: the answer has to be “Yes.” You’ll want to take your time and think about the answers to all of the questions I’ve laid out, in order to hire superb salespeople. It’ll be so worth the time and effort when the right team propels you to reach – and exceed – your goals.

 

 

 

 

 

Chris Tully is Founder of SALES GROWTH ADVISORS. He can be reached at (571) 329-4343 and ctully@salesxceleration.com

“For more than 25 years, I’ve led sales organizations in public and private technology companies, with teams as large as 400 people, and significant revenue responsibility.

I founded Sales Growth Advisors to help mid-market CEOs execute proven strategies to accelerate their top line revenue. I have a great appreciation for how hard it is to start and grow a business, and it is gratifying to me to do what I am ‘best at’ to help companies grow faster and more effectively.

Let’s get acquainted. I am certain I can offer you an experienced perspective to help you with your growth strategy.”

CONNECTpreneur enters our 9th year with a bang

Recently, I was interviewed by the Montgomery County Economic Development Corporation about The Big Idea CONNECTpreneur Forum, of which they are a sponsor. Following is the transcript of the interview. I have been a Board Member of this tremendous organization for the past 4 years.

CONNECTpreneur recently entered our 9th year. To date, we have hosted 47 events, the last 4 being “virtual” events. Over 20,000 business leaders, investors, and entrepreneurs from around the world have attended our events. Our website is connectpreneur.org. Please check us out!

 

THE BIG IDEA
CONNECTPRENEUR FORUM

IN CONVERSATION WITH TIEN WONG, CEO, OPUS8, AND
FOUNDER & HOST, CONNECTPRENEUR

Get to know CONNECTpreneur, a unique forum which attracts the region’s top entrepreneurs, investors, innovators and game changers. Organizers of the top tech and investor networking events in the region.

WHY IS IT IMPORTANT TO MAKE CONNECTIONS BETWEEN BUSINESS LEADERS OF ALL STRIPES – CEOS, VCS AND ANGELS – TO EARLY STAGE COMPANIES?

Not just for early stage companies, but all businesses of all sizes, the old adage, “It’s not what you know, it’s who you know,” still applies very relevantly. People want to do business with people. Early stage companies, in particular, have many needs: capital, talent, customers, vendors, partners, product development, marketing, etc. and having a large and deep network gives an entrepreneur a huge advantage in the marketplace, for obvious reasons. There is a proven correlation between the size and quality of one’s network, and one’s overall success — in entrepreneurship and most endeavors.

 

WHAT IS THE SECRET SAUCE THAT MAKES CONNECTPRENEUR A TOP TECH NETWORKING EVENT IN THE REGION?

It’s our ability to attract the region’s top entrepreneurs, investors, innovators and game changers. We pride ourselves on organizing the top tech and investor networking events in Montgomery County and the Washington region as a whole. We think that the reason that over 70% of our surveyed attendees rate CONNECTpreneur as the “number one” tech and networking event in the Mid-Atlantic region is because of the high quality and seniority of our attendees, which is unprecedented. Over 20% of our attendees are accredited angel investors or VCs, over half are CEOs and founders, and we intentionally keep the ratio of service providers as low as possible. This makes for more meaningful connectivity among the participants.

 

HOW DOES CONNECTPRENEUR SUPPORT FEMALE ENTREPRENEURS AND ENTREPRENEURS OF COLOR?

CONNECTpreneur is very intentional about providing a diverse set of presenters and speakers in our programming. Our community of entrepreneurs and investors is highly diverse, and our selection committee is very tuned in to the benefits of gender and cultural diversity. We actively work with and partner with local, regional, and national players who share our values of “double bottom line” ethics which value social impact as well as financial gain. Some of our partners include Maryland Tech Council, TEDCO, Startup Grind, Founder Institute, Halcyon and Conscious Venture Labs to name a few.

 

 

WHY IS MONTGOMERY COUNTY A GOOD LOCATION FOR AN INNOVATIVE STARTUP COMPANY? AND, WHAT’S YOUR BEST ADVICE FOR SUCCESS?

Montgomery County is a top tier County nationally for startups, and that’s evidenced by numerous awesome success stories. MoCo has a tremendously educated talent base, world class government institutions, top schools, and a large base of angel and high net worth private investors who can provide seed funding. The best advice for success is to understand thoroughly your customer and their needs and pain points very deeply. That way you can get to “product market fit” more quickly, de-risk your opportunity, and be more capital efficient. Too many companies get enamored with their product and design, or culture, or getting media coverage whereas the true essence of any successful business is to provide excellent products and solutions to its customers and sell into their markets like crazy.

 

WHAT ARE SOME UNIQUE CHARACTERISTICS OF AN EARLY STAGE COMPANY THAT SPARK YOUR INTEREST TO EXTEND AN INVITE TO PARTICIPATE IN THE FORUM?

We are looking for presenting companies which have truly disruptive ideas, products and/or solutions which could be sold into huge markets.  And of course, the most important criteria are the quality, expertise, and coachability of the founding team. We have had presenters from all kinds of sectors including life sciences, cyber, telecom, blockchain, wireless, mobility, e-commerce, marketplaces, fintech, medical devices, IoT, etc.

Learn more about CONNECTpreneur at our website: connectpreneur.org

 

 

 

Smart People Might Be Killing Your Strategy

This is a Guest blog post from Mark Haas, CEO of the Association for Enterprise Growth. He helps boards and executives create powerful strategies to help them make decisions with greater confidence, impact and pride.

 

Corporate restructuring, M&A, competitive intelligence, strategy, new product development, and process reengineering.   One thing required for success that they all share is the need for the best and brightest. The smartest person in the room. World class minds to solve world class problems. Top grads from the best schools.

I disagree. While intellect has its place in business, being smart is no replacement for creativity, agility, innovation or insight. Yes, sometimes these capabilities are rolled into one person, but rarely.  Several decades helping clients create strategy has led to some insight into where smart is a help and where it can be deadly.

You wouldn’t want only the “smartest” surgeons, engineers, artists or teachers wholly responsible for your welfare. You’d want the right team of individuals, each bringing appropriate skills for the task. Creativity is about being able to see alternatives. Agility requires anticipation. Innovation is more about flawless execution than the up-front ideas. Insight needs, well, a lot more than intellectual horsepower.

The Risks From Being Smart

Being smart has a huge downside for humans. It derives from how we were raised, trained, rewarded and placed in corporations. As children, most of us were rewarded for being on time, orderly and respectful of adult norms. In school, being smart was equated with getting the “right” answer, quickly. Most professions promote a body of knowledge that implies adherence to widely accepted professional standards. Our advancement in most business settings is a result of knowing the right people, performing well on tasks and knowing the rules of promotion. All this seems appropriate because it is so familiar.

In strategy formation, high intellect can be a hindrance; in a team of only “the smartest of the smart,” it can be a disaster. Especially in an increasingly VUCA world, there is no single answer and the first answer is often not the best answer. For the highly intelligent person, the learned (both personally and socially) rigidity and linearity of problem solving to reach an elegant, perfect solution gets in the way of seeing the possibilities of which powerful strategies are made.

Use Smart, But Leverage It

The solution is not to ban smart people from the strategy team. Rather, recognize that the skills you need for a powerful strategy team go far beyond intellect. A high-horsepower car engine is great in theory but is useless without fuel injectors, cooling system and brakes. Fill your team with staff (this also applies to external advisors) who can turn off their brains for a bit and participate more fully in the other essential parts of the strategy process.

 

Mark Haas is CEO of the Association for Enterprise Growth. He helps boards and executives create powerful strategies to help them make decisions with greater confidence, impact and pride. He works with companies and nonprofits to develop strategies, create and validate business models, and execute with discipline. Mark is also an international trainer, facilitator and speaker in ethics, strategy and performance management. He can be reached at  mhaas@enterprisegrowth.org and (301) 442-5889.

The (Not So) New Game in Private Equity

This is a Guest blog post by Kerry Moynihan, Partner at Boyden.

 

WHY LEADERSHIP MATTERS MORE THAN EVER

A Very Brief History of Private Equity

The origins of today’s private equity industry (which I would define as including both venture capital and leveraged buyouts) date to 1946 with the foundations of American Research & Development Corp. (ARDC) & J. H. Whitney.  Prior, risk capital had almost exclusively been the domain of wealthy families.  Venture capital pioneers Mayfield and Kleiner Perkins were founded in 1969 and 1972, respectively.  In the buyout realm, the origins of LBO pioneers KKR began at Bear Stearns with “bootstrap” investments in the early 1970s, forming the foundation of the firm as we know it today.  TH Lee; Forstmann Little; Welsh, Carson, Anderson & Stowe; and GTCR were all in operation by 1980 and became major players.  The modern private equity business continued to emerge in the 1980s with the realization that there were major discrepancies between public company management interests, the age old “agency problem” and the values that could be unleashed were business units to be decoupled from large public companies.  The year 1980 saw some $2.5 billion raised dedicated to the emerging alternative asset class and in the decade that followed nearly $22 billion was raised by venture and buyout funds.

The wide availability of junk bond financing fueled a boom during the 1980s, followed by a crash as the stock market tanked in October 1987.  High yield financing, or “junk bonds,” dried up for a time, and Drexel Burnham, the leading purveyor of these instruments, later went down.  However, institutional investors had certainly picked up on the higher returns available to PE than in the public markets.

Key to these were the availability of debt financing, the disparity between management that were merely salaried and those that were incentivized by equity, and the discrepancy between public and private market information.  For much of the next two decades private equity vastly outperformed the public markets.  Clearly, the emergence of technological innovation in software, semiconductors, and telecom fueled the venture side, while widespread industry consolidation and globalization largely propelled the LBO market.

As ever more money flowed into pensions and other institutional investor funds, the demand for higher yields accelerated.  This put more capital into the financial markets seeking higher returns and the boom continued.  Of course  there were blips and shocks, including the Foreign Debt crisis of 1997/98, the bursting of the dotcom bubble around 2000, the cessation of normal market activity following the 9/11 attacks, and perhaps most seriously, the major Financial Crisis after the collapse of Lehman Brothers and Bear Stearns in 2008.

However, markets rebounded, time and time again.  Institutional capital, which seems to have a short collective memory, always seeks ever higher levels of Alpha (relative return) and will accommodate Beta (risk), often in unison, seemingly without independent, objective decision-making.

Institutionalization & Growth of the PE Industry

Funds were usually (relatively) small and privately held, and made individualized, partner-driven investment decisions.  Yet as their size has increased, and in many cases the larger funds went out to the public markets, the industry has fundamentally changed.  Now publicly traded, firms like Apollo, Blackstone The Carlyle Group, and others are, as the co-founder of one confessed to me “No longer in the business of making extraordinary, outsized returns on unique investments.  We are now in the asset management business. If we can beat the S&P by 150 basis points and put huge sums to work from institutional investors, we are happy and the investors are happy.“  With the traditional model of a 2% management fee on assets under management (AUM) and 20% capture of the return on investment, the carried interest, who would not be?

Where a billion dollar fund was once considered a large player, there were over 350 by 2018 and even more today.  There has been a veritable explosion in investment in the sector, as uninvested cash, or “dry powder“ at PE firms exceeded $1.5 trillion by the end of 2019.  Blackstone alone, the Wall Street Journal reported, had $150 billion in cash to invest at the end of last year.  Institutional Investor reported in July 2019 that 4000 funds were seeking to raise an additional $980 billion, up from 1385 funds seeking to raise $417 billion just four years earlier.

Yet in the 2010s the number of publicly traded companies stayed roughly the same while global AUM for PE firms and the number of PE-backed companies doubled, according to McKinsey & Co.  It comes down to simple economics as more money is chasing fewer good assets, hence driving up prices, and reducing returns.  S&P reported in November 2019 that the average pro forma EBITDA multiple was 12.9, up over 30% from pre-Financial Crisis pricing.  The massive leverage, low prices, and eye-popping returns of the 1980s are but a memory.  What is a simple fund to do?

Adding Operating Expertise

Importantly, funds have changed their own internal structures over the last several decades. Almost no funds had seriously tenured operating executives as part of their investment teams in the 1980s, being almost exclusively comprised of “recovering investment bankers.”  The 1990s saw a bit of a change, but now almost every major fund has hired people who have more than an investment banking/finance background and have been senior operating executives who have actually run P&Ls.  In many cases these are actual full partners in the funds, as the Silicon Valley venture capital community was quicker to adopt this model, typically by adding tech CEOs to their rosters, than the Wall Street LBO community.  Many are termed Operating Partners or Management Associates, but whatever the nomenclature, there has been a collective recognition that strictly financial engineering and financing skills are necessary, but not sufficient, to create outsized shareholder returns.

Most of my clients and many of my good friends are private equity professionals.  Without naming names, an informal survey confirms the general thesis that by training they are not prepared to run the businesses that they buy.  Increasingly they recognize these facts, despite being “the smartest person in the room“ on virtually any topic (sic), in the not so distant past.

Where Are We and Where Are We Going

Fast forward to today, the late 2010s and early 2020s. The game has changed significantly, to say the least.  Not surprisingly, many of the factors that led to the tremendous success of the industry in years past have changed dramatically.  There is a changing reality and investment firms have, with varying degrees of success, made adjustments.  For example:

Financial engineering is no longer adequate.

Given the low interest rate environment of recent years, and explosion of alternative lenders such as credit funds, beyond the traditional large banks, a giant fund enjoys little advantage over a smaller one on the availability of financing or borrowing terms.  And, let’s face it, even if KKR or TPG can borrow at 25 basis points lower and with slightly less restrictive covenants than XYZ Capital Partners can, that factor alone is unlikely to be the deciding factor between the success or failure of an investment.

Globalization of the industry

Where venture capital and leveraged buyouts were virtually exclusively a US phenomenon just a few decades ago, today according to various studies, only about 55% of global private equity activity is in North America today.  While Africa and Latin America are somewhat underrepresented, Europe and Asia are booming in this respect and the former may well catch up over time.  It has become, as in so many industries, a much more competitive, truly international playing field.

Ubiquity of information has changed the game

The asymmetry of information that led to smart buyers and uninformed sellers is simply no longer the case.  The incredible proliferation of information and ease of access on a global basis means that sellers, even of relatively small and unsophisticated businesses, have a much better handle on the overall market than in the past.  An investment banker friend and I have a running joke that Old Uncle Burt, selling his cornfield in Iowa, knows that he can command 7.8 to 9.3 times EBITDA these days and will have five buyers lined up!  In short, because of this the market is much more ruthlessly efficient, further evidenced by the dramatic expansion in the number of deals done and in the ever higher multiples paid for them.

The Model Still Works

The increased volatility of public markets, however, continues to make private equity attractive.  What was once termed an alternative investment is certainly now very much in the mainstream for most sophisticated investors.  However, the delta in returns between public markets and private markets have flagged in the last several years.  As Bain & Co. noted in its 2020 Private Equity Report, “10-year public market returns match PE returns for the first time.”

Yet the current crisis, at the same time akin to the ones we seem to have every five or 10 years, and on the other hand of unprecedented scope, has obviously put an enormous dent in the wealth accumulated in the stock market.  The ability to be patient and not have to respond to quarter-by-quarter earnings can allow private equity investors to take a more strategic, long-term view and ride out much of the fickle fluctuations of the financial markets.

This may seem a bit ironic, since most PE funds would love to be in and out of investments in a 3 to 5 year timeframe if possible.  But with the public markets bouncing as violently as they are, private equity will remain a very attractive industry, both for Limited Partners as institutional investors and General Partners, the PE funds, as the custodians and direct investors of those funds.

 

Executive Leadership Matters, Now More Than Ever

Over time, more and more funds have gone to a model of backing individual executives or executive teams in what I call the “Back-able, Bankable Leadership“ model, or BBL.  Both venture and buyout funds have increasingly backed executive leadership that has had prior success and will continue to do so.  The proverbial “Holy Grail“ for investment funds is to find management teams that are proven and have as close to a proprietary idea as possible.  By this I mean either a specific target company(ies) for acquisition or a well-developed investment thesis with demonstrable potential acquisition targets.

How much better to create a situation where you have an organic genesis of an investment, rather than competing in a broad auction scenario against many other funds.  In the latter case, the “winner” of an auction may be successful in acquiring a business, but a loser as an investor, having paid too high a price at the outset.

An old saw in investing circles is that “You are more likely to win by backing an ‘A’ management team with a ‘B’ plan over a ‘B’ management team with an ‘A’ quality plan.“  At no time has this been more true than today, as many firms actually have to reinvent their business models on the fly.  As we face unparalleled turbulence in the markets, especially given the latest crisis, never has leadership, true leadership, been at more of a premium.  Operational excellence, coupled with the genuine ability to inspire, will always be valued.  In short, today it is more critical than ever to actually run businesses better.

Effective executive leadership makes all the difference.  It certainly makes me quite sanguine about the prospects for the executive search industry in partnering with private equity clients to create value.  Successful investors invest in superior management and leadership, especially when competition is greater than ever and times are uncertain, to say the least!

 

Kerry Moynihan is a Partner at Boyden. He has had a distinguished career of more than 30 years in executive search, making a significant impact on client organizations through strategic talent acquisition and development. Working across a range of industries, he specializes in partnering with boards of directors as well as private equity firms and the C-suite executives of their portfolio companies to deliver for investors. He can be reached at kmoynihan@boyden.com.

Is Your Company Ready to be Sold?

This is a Guest blog post by Steve Pimpo and Bill Rossello of Greenhouse Consulting.

Common challenges we see and how to overcome them

Most business owners will come to the point in their journey when they feel it’s time to sell the company. They have spent a lot of time successfully building and growing their business, but most times are unprepared for the scrutiny and questions that they will face when being evaluated by a prospective “buyer” and their advisors. Based on our own experience and input we solicited from investment bankers, only about 10% of companies with owners seeking to sell are actually ready.  Here are some of the reasons why:

Customer Diversity – A high percentage of company revenue comes from one client or contract. Unless a potential acquiring company is trying to “buy” into a market, buyers like to purchase companies that have a diverse client base or unique service or product offering.

Company Narrative – Some owners use the same sales pitch to pitch to prospective buyers as they do to customers. Communicating the value of a company to a potential buyer is different from selling services to a customer. You need to recognize what buyers want and articulate what is special about your company.

Financials – Sometimes there are accounting inaccuracies that can’t support “quality of earnings” or EBITDA adjustments. You need to ensure that financials are accurate and realistic and can stand up to the scrutiny of a potential buyer’s audit.

Quality of Contracts – Many prime government contracts are “set asides” or subcontracts and there is no clear path to transitioning them to a larger company. You should be prepared with a valid contract revenue waterfall, and a plan to transition set-aside contracts and relationships.

Management Commitment – Ownership hasn’t taken steps to ensure that the leadership and key players are “read in” and will remain with the company post-transaction. People are part of the “goodwill” and company “brand.” It is important to show buyers that there is a plan in place to retain these key employees through to the transaction and beyond.

New Business Pipeline – Buyers will hone right in on your pipeline looking for two things. Is the pipeline full of legitimate prospects and is your pipeline tracking system logical and consistent? If it does not consider reasonable estimates of gross and net revenue and probability of win, it’s not likely to pass a buyer’s sniff test. You need to be ready to justify the reasons you selected each big deal and why you think you have a good chance of winning.

Strategic Growth Plan – Many sellers lack the ability to articulate to potential buyers, a bona fide growth plan, one that paints a credible picture of where the company could go over the next 3-5 years with the power, resources and reach of a larger firm. You need to have that narrative ready to go when you put the company on the market.

Valuation Expectations – Often owners have an unrealistic expectation about the “multiple” of EBITDA or revenue a buyer will pay based on what their peers or friends have received in their transactions. Make sure you focus only on the value of your own business, what similar companies have sold for. Put yourself in the buyer’s shoes. Will they really pay for a tool that does not generate repeatable revenue? Or take a huge risk of paying a high multiple for a company with some of the issues raised herein? Talk to transaction experts and, if you’re willing to pay for it, get a formal valuation prior to putting your company on the market.

Your Near-term Future – Some owners just want to retire or quit the business after the transaction. If you’re the person who manages the company’s client relationships, or you’re the chief technologist, or if there is a major upcoming re-compete, the buyer is likely to want you to stick around for a while after the deal is inked. And there may be an “earn-out” provision that ties some portion of your proceeds to achieving certain objectives over that timeframe. Before you put the company on the market, be sure to consider how you would answer a buyer if they ask you stay on.

Due Diligence Preparation – There needs to be sufficient organization and appetite toward due diligence. The process is inevitably painful, invasive and underestimated. Approach this as a client engagement or actual project and assign one individual to own/manage responsiveness and production.

Without question, selling your company will be the most important professional decision you will ever make. If you address these issues prior to formally starting the process, you will get more attention from investment bankers, dramatically increase the probability of a successful transaction, and likely increase your proceeds too. Most investment bankers don’t have the time or resources to help you address most of the things we have identified. Even worse, they might see you as an unsophisticated seller and probably turn down your business. So, commit the time, effort and resources to prepare 12-24 months before you call the bankers.

Steve Pimpo and Bill Rossello are Principals and co-founders of Greenhouse Consulting, a Washington, DC based business that provides management consulting services to help companies grow or prepare to sell. They can be reached at spimpo@greenhousefirm.com and brossello@greenhousefirm.com, respectively.