Monthly Archives: June 2013

The CFO as a Tranformational Leader

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Change in Corporations

The President of the privately held midsized company was ambitious. JIM viewed himself as quite entrepreneurial. He envisioned acquisitions in their future and eventually a rather large liquidity event when a major corporation would buy his multi-location enterprise so he could move onto his next great adventure.

JIM was impressed with himself when he brought a CFO onto his executive team before competitors in his industry tended to do so. The CFO could play a role in banking relationships, help obtain growth financing, run scenarios as new products were considered, and lead the valuation process when acquisitions were in play. At least JIM wasn’t expecting GEORGE, the CFO, to process payroll or handle accounts receivable and account payable.

OK. So on the surface, it sounds like the company had fairly clear growth and exit strategies, even if they hadn’t been fully articulated to everyone involved. But it didn’t feel that way for the members of JIM’S executive team on a daily basis.

Like many mid-sized companies, the leadership got lost putting out fires.  A major proposal wouldn’t just involve the sales department, JIM had his hands in the process, and the accounting department would be expected to “crunch numbers.” Pricing was always an issue. Figuring out which incentives would encourage key people to stay was constantly put on the back burner. Most of the executives were becoming convinced that they would never have an equity stake.

Then, all of a sudden, an opportunity for an acquisition surfaced. GEORGE was asked to lead the valuation and due diligence processes. Not surprisingly, the negotiations fell apart for this and the next acquisition that was considered. No deals were struck and JIM looked to GEORGE as the CFO for explanations.  Let me give you a hint.  If you think differing valuations can derail mergers or acquisitions, try negotiating when your key executives don’t sense job security.  Why should key people at the acquired company trust the acquiring company?

GEORGE left JIM for a better paying position with a larger company.  It was interesting to see how his replacement approached the position and handled JIM differently right from the beginning.  SAM asked a great deal of questions early in his tenure and helped JIM solidify the visionary plan.  Its success would depend on some transformational changes in the company so they could be better prepared to be the acquirer and not the acquired.  They couldn’t keep operating day to day and expect transformational results. SAM negotiated with JIM and was assigned key transformational tasks that included executive compensation and incentives, succession planning, stabilization of budgets, pricing, cash flow, reserves, debt service, etc. And then SAM helped JIM quantify what was meant by “large liquidity event.”

The company was eventually sold for far more than JIM had envisioned.  It turned out that SAM was a bit more visionary than JIM had been.

“JIM, tell me what you need” was replaced by “JIM, let me show you something we need to do together to make that happen.”

Redefine The Word “STILL” In Your Organization

The Growth Strategist

It is a $22 Mil/yr business. Some days it feels like “CONGRATULATIONS” are in order and other days “CONDOLENCES” might feel more appropriate.

Yes, they generate a net profit.  In fact, their net is exactly the industry average. And yes, most customers would still give them a reasonably good evaluation.

But, a few key people are still working ridiculously long hours.  The Controller still can’t get his arms around the budgeting process.  The Marketing Department seems to always need more money but still can’t adequately measure results. There’s been a revolving door in the sales manager role and the President still has to close the big deals. There are more and more meetings, but folks still complain about a lack of communication. Despite the investment in software and training, the customer-focused departments are still dealing with scope creep, eroded gross profit, and tight project deadline.

Did you pick up on the word “still”?  I think the word was used 7 times in the paragraph describing where things stand.

When team members use the word “STILL” … they are anything but STILL.

They are getting tired.  Their jobs are draining their energy rather than fueling their enthusiasm. For a while, dedicated people keep on running. Most folks try to do their best.  It’s unlikely that the Controller is intentionally trying to screw up the budget process over and over again. The sales managers who quit or were let go weren’t all coasting.

It’s ironic.  A company that is on a plateau involves a whole lot of activity…lots of running…lots of fires being put out.  But all of the activity can feel like running on a treadmill without losing weight or gaining muscle.  Without progress people won’t run in place forever.

Give this some thought!

Is it time for you and your management team to be STILL for a few off sight get-togethers? Strategic working sessions? Is it time to figure out what “the next level” is for your business and start creating that… instead of doing the same thing STILL with no results.

Get Centered About Your Approach to Compensation Before Taking on Acquisitions or Roll Ups

What if your exit strategy is to sell your $100 Mil/yr firm in 5 years? Who are the key team members who would have helped you drive the profitable growth to reach $100 Mil/yr? What will each key player be accountable to produce during that five year journey? Have some scenarios been generated to project an optimum mix of base salaries, performance bonuses, and profit sharing? How much risk are you willing to take that one or more of those team members leave during those five years? Should some equity be involved to feed the voracious cash hunger that most rapidly growing companies have?

These sound like reasonable questions, right? The funny thing is, answering these questions can get out on the back burner as sales proposals are written, the IT infrastructure goes to the cloud, and measurement of customer net promoter scores get computed.

But imagine if your plan to grow to $100 Mil isn’t just organic.  What if it involves some acquisitions or a roll up?

It you think conflicting business valuations can interfere with the success of acquisitions (which they do), try having fuzzy compensation formulas for senior people!  Nothing will interfere with the successful integration of firms more than that.

When my growth consulting firm facilitated a 16 company roll up, the leaders of the primary client were reluctant to take the time to solidify their own approach to compensation before entering into negotiations with prospective roll up candidates.  We have become much more insistent about this step since then because the first three deals (that should/could have worked) fell apart when key players felt disenfranchised, unappreciated, and inadequately protected.  Once they paused, brought in “the comp. guy”, and took care of their own people, they could proceed with the roll up.  By the third roll up participant, there was a comfortable philosophy behind compensation that would apply to all rolled up companies from that point forward.

Creative Recruitment Strategies

If your bright, caring, hard-working, dependable, trustworthy, problem solving people are your company’s competitive advantage…take a fresh look at your recruitment and selection processes. Having team members with those attributes is fabulous, but it quickly becomes both your optimizing and limiting factor.

Make sure your marketing is focused as much (or more) on the attraction of employees as customers. Does your website have a section for job applicants and open positions? Does it include employee testimonials conveying why they think that accepting a position with your company was one of their best life decisions? Does the section include information about the company’s mission, philosophies, and code of ethics? Does the section provide examples of career advancement and educational opportunities? Have you posted video from the event when your company was named one of the “Best Places to Work”?  And it’s not just your website. What about media press releases? You Tube videos? LINKED IN and other social media?

Consistently, insistently, persistently convey that your company is always looking for new talent for your team.  When you are giving an industry speech, are colleagues hearing that you have job vacancies?  Can they clearly hear the attributes you value? Could your closest friends describe the attributes your company values so they can speak up if/when a neighbor’s son/daughter is looking for a job?

Provide incentives for everyone in your company to contribute to recruitment.  People tend to choose friends who are like themselves. Bright people who are continuous learners don’t “hang out” with the school drop-out. Do your employees get a bonus for referring friends or relatives to apply for work at your company?  Maybe they shouldn’t receive the bonus until their friend has successfully past an initial probationary period (90 days?).  Those bonuses cost your business much less than it costs to replace and train employees.

Contact colleges, but go further than just the job fairs.  Employees can often remember the names of their best professors. It pays to directly contact professors to ask for the names of students who earned high grades, but were not necessarily the most outspoken students.  Most companies do not really want to hire arrogant people.  In general, the humble achievement oriented people are more likely to stay, learn, and be promoted while arrogant employees are more likely to job hop.

Growth Strategy Tip

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