Getting out of a Business
June 27, 2008
I recently read that GE is getting out of the appliance business, a line it’s been in for about 100 years. The strategy has been called “profit mentality,” “the pruning process,” and other names, but it’s about shedding unprofitable business lines and focusing on those that make the most money. And it’s a tough thing to do.
And that’s a particular challenge for the entrepreneurial company – letting go. We entrepreneurs love our businesses. They are our model children, who never grow up (unless we let them), never ask for the car keys, and never stray far from our egos. What do you do when your anchor business becomes an albatross? It’s not just a matter of the money. Our investment goes much deeper.
I once knew a CEO who had built a small conglomerate of about 10 non-aligned businesses. His rule was, “if it doesn’t show a profit for 3 consecutive quarters, we divest it!” The rule worked well, except for the first business he started. He was sentimentally attached. It became the exception to the rule for nearly 3 years, before he could come to part with it.
Letting go of a favored business line may involve only small changes, or it may require a substantive shift or even a business reinvention. Here are _____ important issues (taken from my “Business Leader’s Manifesto”) to help you make the right decision at the right time:
1. A GOOD INVESTMENT – I am the Leader of this business and am responsible to see that the business is treated and evaluated on the same basis as any business investment I might make, both in terms of time and money invested. I may have paid managers and staff to perform some or even all of the day-to-day tasks, but ensuring an adequate return on investment (blood, sweat and money) is my responsibility and my responsibility alone.
2. ACHIEVING SECURITY/ROI – I recognize that there are two components of an adequate return: First, time invested must be compensated through salary, benefits and perks; AND, money invested must be guaranteed a fair rate of return plus a premium for the level of risk assumed (by operating a small business – usually 3-5% over prime). Adequate returns do not just happen; they are achieved through planning and action. This commitment involves setting realistic, quantifiable goals; taking the steps necessary to see to it that those goals are achieved; that results are measured and meet expectations; that we celebrate our victories; and, that we adapt, as needed, along the way.
3. IT’S A BUSINESS – I am responsible to ensure that the business I have invested in has a real business and community purpose. This means: I must be realistic about not throwing good money after bad; about separating real business activity from my own ego gratification; and about assuring at least a baseline of security for myself and those who depend on this business by taking prudent risks.
4. IT’S ABOUT PEOPLE – I am responsible to the people who work in my business. This involves: establishing organizational goals; providing direction about their responsibilities in meeting these goals; setting standards of performance; and providing job performance feedback. This organized approach frees employees to perform effectively because it assures them that their positions are not held capriciously at my whim and that their paychecks are not constantly in jeopardy. This approach also facilitates identifying organizational successes and potential roadblocks. In a world of rapid change, just a little perceived security goes a long way.
5. IT’S ABOUT ME – Finally, I am responsible to myself, my family and my other stakeholders to engage in an active program of succession planning. Timely, thorough succession planning can facilitate a smooth transition when the day comes that I determine that: the business is no longer viable; I have personally had enough of it; or, it has just become time for me to step aside.
A Coach is not…and is
June 4, 2008
If you look at the sports model, you’ll always find the coach on the sidelines. S/he is not the star, not the performer. S/he may be providing much of the strategy, or little, much of the encouragement, or merely a tweak, much of the sweat but little of the bruising. The coach is, or at least should be the cold reality of honest perspective wrapped in a warm blanket of trust and detached enough so as not to melt before the medicine is taken.
The Succession Planner – Business Succession to Get Results
June 4, 2008
Hello, I’m John Reddish and I have created The Succession Planner as a business blog intended to provide thoughts and information about business succession strategies and resources for other CEOs, entrepreneurs, and small business owners as they (you) -
Plan for business succession (who will run my business when/if…)
Craft an exit strategy (how to get out of your business with enough money to live the way you want to, and allow the company to have/retain enough assets to survive, and prosper, too)
Consider what it really means to sell your business and all it entails
Navigate the merger and acquisition process (M & A, buying and selling companies)
Understand and Calculate business valuation (what is my business really worth?)
Establish a succession plan to enhance the value of the business prior to sale and support current lifestyle levels while waiting for the right deal
and even transition to retirement…or more often a move into your next venture with a life plan that works for you.
…all with an eye to helping you Get Results.
(this is a link to my traditional style website)
Celebrating Our Immigrant Heritage
June 4, 2008
W.O.P. – It’s descriptive of an earlier derogatory attitude. It’s offensive. Still, many of our ancestors came to America in just that state– With Out Papers. As we celebrate our 232nd national birthday this year, let’s not forget that we are a nation of immigrants. Most of our families, in their turn, faced discrimination. Today we have, so the estimates say, more than 13MM illegal immigrants. Many of them work hard, work cheaply and still manage to send money home to their families who are able to live a better life because of it. Many also do jobs our children and fellow citizens won’t do, or really don’t want to do. Some are second generation, or more, and contribute quietly to our society in ways we can’t measure simply because they are operating below the radar.
I travel to New York frequently and drive where I can see the Statue of Liberty http://www.nps.gov/stli/, and Ellis Island where many first landed. It is really magnificent.
At Lady Liberty’s base is an inscription citing a poem by American poet Emma Lazarus, which ends with the statue herself speaking: “Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore. Send these, the homeless, tempest-tossed, to me: I lift my lamp beside the golden door.” Her invitation, and the accomplishments of those who have accepted it, has made ours a great nation. What are you doing to keep the lamp lit and the door open?
Finding A Small Company to Buy & Making the Deal
June 4, 2008
Some of the best opportunities in small company purchases are not even listed for sale. Here’s how you find them and how you protect yourself as you move closer to purchase.
Finding Targets (3 key points):
1) make sure you, or your client, knows what kind of prospects you are targeting. Establish a criteria checklist with 3-5 “must have” criteria and as many “I’d like” criteria as you want. Immediately walk away from any prospective company that does not seem to have all your must have list.
2) ask your client’s contacts in the target industry who they would want to acquire, who they admire and who to avoid (many of the best deals never get listed for sale anywhere). Qualify these prospects against your must have list and ask them if they might consider a sale.
3) team up with a good direct mail list broker and find out what companies are in your target universe, and your most desired locations. There are more companies out there than you know. Do a blind survey to see if any might consider selling. Qualify those who do and go from there.
Due Diligence (7 key points)
Confirming your “must haves” – checking the facts presented is not enough – even though you have initially qualified your prospects, you have to dig deeper. Due diligence is hard for smaller companies where public company comparisons are not often meaningful and financial (and other) disclosures might not be apparent or complete:
1) review financial, marketing and operational information on any smaller company you contemplate acquiring. Pay attention to the details. Check out anything that looks odd. Small company owners often do not make clear distinctions between their pockets and those of the company. If you and your accountant are not good ferrets, use an acquisition consultant to sniff out any discrepancies.
2) recast their “numbers” to reflect any changes in value due to newly discovered issues. If the owner balks at adjusting the price, or won’t negotiate, walk away.
3) spend time with key executives and staff in the company to be acquired. If you have doubts about them and their continued performance is a critical part of the package, move on to the next prospect.
4) if you find there are people at the company you like and want to keep on, not including the former owners, offer them employment contracts that match or exceed what they already have. Get these contracts signed and make their continuation a contingency of the sale.
5) most small sales are installment sales. Make sure you have controls to ensure you are getting what you paid for throughout the deal. Build in escape clauses and/or performance adjustors as safety valves.
6) even if you want to keep the previous owners in place over time, the odds are against it working. Be very careful buying a business whose future success is tied to a former owner over a long term.
7) And even then, after you’ve done all your homework and it seems to add up, if you don’t feel right about the deal and its potential when you sit down at the settlement table, remember it’s not too late to walk away.
John Reddish works with entrepreneurs and other leaders who want to master growth, transition and succession to get results faster, less painfully and in ways that work for them. For information and/or additional similar content go to: www(dot) getresults(dot) com, or call 1.800.726.7985.
Categories
Remembering – “It’s not creative unless it sells”
June 4, 2008
In all my years in helping clients identify their “it” (unique selling proposition, strategic advantage, brand, sustainable identity, etc) – that special thing/essence/feeling that makes them unique in the eyes of others, some call it their “unique selling proposition,” one agency slogan from the 1980’s has always stood out as clean, clear and simple. It’s the Benton & Bowles campaign (crafted for their agency by Al Hampel) “It’s not creative unless it sells.” Read more
