Equity Deals

Equity deals: Equity is the difference between the market value of a property and the claims held against it or the ownership interest of shareholders in a corporation. Equity deals means to offer equity positions (ownership of their company) for key people during a strong economy.

As an Entrepreneur, Have You Lost Your Authentic Swing?

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Businessman ThinkingI love the 2000 movie The Legend of Bagger Vance.

Remember it? Directed by Robert Redford, the movie was based on Steven Pressfield’s 1995 book with the same name. The actors include luminaries Jack Lemmon, Will Smith, Charlize Theron and Matt Damon. This was Lemmon’s final movie which makes it even more important to many people.

In 1931 (during the depths of the Great Depression), the City of Savannah, GA sponsors an exhibition golf tournament with great golfers Bobby Jones, Walter Hagan and the town’s golf prodigy and hero, Rannulph Junuh.

As he caddies, wise Bagger Vance (played by Will Smith) provides sage advice to help Junuh recapture his “authentic swing.” They talked very little about the fairway, sand traps or greens. They talked about post-traumatic stress, the meaning of life, guilt, regret, a broken heart, giving up, accepting responsibility and hiding. You know…light conversation (lol).

As many golfers of today can tell you, finding one’s authentic swing in golf is not just a matter of repetition. Golf is a mental game as much as it is a physical one. When a golfer’s muscles are tight from being angry at work, his/her slice or hook returns on the golf course. When a golfer’s optimism or confidence is compromised, the short game on the green becomes another nightmare. An executive’s capacity to make great strategic decisions is another version of one’s authentic swing.

Presidents of privately held mid-sized companies often don’t have time to play golf or have another similar outlet that offers feedback on whether the president is still centered. It is impossible to maintain your authentic swing when you aren’t centered. Often the all-important feedback comes in the form of poor business results. The president’s loss of his/her authentic swing is taken out on the business.

Sometimes executives just keep showing up when he/she knows he/she is “just not right with the world”. Continuing to show up is important, but just going through the motions can solidify bad decisions (a hook or a slice). Finding what keeps you centered is worth the effort. An executive coach could be your Bagger Vance.

Alternate Between Divergent and Convergent Thinking When Negotiating Deals

Divergent ThinkingYou have been considering your options, running scenarios, and have come up with what you think is a great idea. But your idea can’t possibly be in another person’s budget or plan. You just came up with it. Both parties usually don’t think of a possible deal or new working relationship at the same time. It’s human nature (and more so these days) for a person to be inclined to say “no” if a deal wasn’t his/her idea. So, the first step in deal negotiation is to help other people open up, get caught up, and not feel rushed. If you push to sell your conclusion, you are very likely to prompt a negative response.

It can help to alternate between divergent and convergent thinking when discussing new working relationships or deals. Once you think you have discovered a good option take a step back and start your discussion with the other party with the premise that there could well be ways that the two of you could work together that would be mutually beneficial. That way, the first discussion is exploratory and expansive (divergent). Together, you generate multiple ideas and approaches.

The operative word here is “together.”

The second time you meet, you can shrink the options down to 3-4 that have merit, which is convergent thinking. Together, you can divide up the “homework” to be done. One of you may research the joint venture option. The other may spell out how money would flow if it should be a strategic alliance instead. Or, one of you might clarify how a partnership might work while the other thinks through how a loan could be executed without a partnership involved.

The operative word here again is “together.”

Deals often fall apart in the early stages because one person was too focused on a single conclusion or only one side is doing due diligence. Deals also fall apart when one participant reveals worries or focuses on possible problems way too early in the process.

If there is consensus on a possible mutually beneficial approach, the third meeting can be dedicated to how to prevent problems, minimize barriers to success, address worries, etc. Aired before concept consensus, those concerns just sound like fretting. Divergent thinking is involved when listing what could go wrong and what might be needed to address issues.

The fourth meeting is the most important in most deals. What will each entity actually commit to doing? Who else will be needed in order for the concept to pay off? What is the best timeframe? What ROI is reasonable for both? Is there a fallback or contingency plan?

In my opinion, lawyers should not be involved in deal discussions until the fifth meeting. Their role is adversarial by definition and certainly feels divergent. Business leaders need to know what they want and be centered, so they can provide clear directions to the attorneys. Life is good when attorneys are asked to explore a concept’s viability versus identifying all the ways it may not work.

The sixth meeting is sometimes referred to as the “champagne meeting”. Together, agreements are signed. The launch is rehearsed. Key people who will make the concept pay off are present.

Again, the operative word is “together.”

When a PRIME Expresses Interest in Acquiring a Subcontractor

Joint VenturesLMN, Inc. has grown over the past few years primarily as a subcontractor to much larger (PRIME) corporations. LMN utilizes a mix of domestic and off shore employees to maintain quality and minimize costs. Recently, large clients have been approaching LMN directly. LMN’s certifications as a small, minority owned-, and woman owned- business may have opened some doors, but it’s clearly their capacity to execute well that is attracting large projects.

Recently, one of the large corporations (PRIME) that has been consistently sending business LMN’s way has expressed an interest in acquiring LMN. The large corporation is particularly interested in how LMN’s offshore staffing is handled.
The Owner/President of LMN was inclined to answer the prime corporation’s questions openly and completely. She wanted to demonstrate appreciation for all of the projects that have been subcontracted to LMN. And she was concerned that if she isn’t forthcoming, the pipeline of projects from that major corporation will stop.

What would you do if you were the Owner/President of LMN?
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The answer flows from where the Owner/President of LMN was/is headed before the possibility of being acquired came up.

If the Owner/President is tired, bored, or ready for a new challenge, she might view acquisition as a welcome exit strategy. However, if she has waited too long and is really tired, she may be way too inclined to reveal trade secrets. I know of situations like that where the owner of the subcontracted company said so much that the larger corporation didn’t need to acquire her company. They simply took the information, used it to make improvements to their approach, and left the former subcontractor “hanging in the breeze.”

If you would be inclined to sell in this situation, it pays to utilize advisors so you don’t share too much and inadvertently lower the perceived value of your business.

We helped one of our clients in that circumstance sell her shares to a few company executive(s) so she could get the money she wanted and the executives (new owners) would then negotiate with the larger corporation about possible acquisition (or not).

If LMN’s Owner/President has taken a longer term view, she may be excited about the fact that large accounts are now coming directly to LMN and be glad that LMN is less dependent on any one (or a few) PRIME corporation(s). If so, she would see that just because the larger corporation has expressed an interest in acquiring her company, she should still protect its trade secrets.

(Note: In some ways, having a high percentage of your business coming from one major corporation feels like a bad acquisition has already happened. The large corporation may not have paid you, but they do essentially own you.)

This is a peer-to-peer situation that calls for equal levels of disclosure, due diligence, and exploration of the pros/cons to closer affiliation. It is not the time to think of terms of “courting the major corporation.” The large corporation should be courting LMN. What is the benefit of affiliating? What is so wonderful about becoming part of the major corporation that beats owning your own business?

Why is the larger corporation interested in acquiring LMN? Or are they really interested in eliminating competition (since large clients are now going directly to LMN)?

We advised LMN’s Owner/President to explore the possibility of a joint venture and table the acquisition discussion for now. Joint ventures involve clear commitments, declared time frames, shared responsibility, etc. If the two entities can find a fair approach to work closely together to both benefit…why would an acquisition be necessary?

 
 
 
 
 
 
 
 

[video post] Ah…Family

Ahhh, Family

The brother came to quarterly board meetings, but that was about it. He happily pulled his share of the profits from the family business for years and years and years.  Amazingly, he became tired of having to go to board meetings and asked his siblings to just buy him out which they did.

The sister had an impressive title.  According to the company’s organizational chart, she oversaw four departments. The reality was that professional managers had been brought in to really run the departments.  They each kept her informed just in case, but no real value resulted from their meetings with her.

The younger brother was president, and he wanted the business to truly grow, be successful, and stand for something.  He developed a strategic plan, invested in multiple locations, and occasionally tried to motivate his sister. One day, the sister came into a management meeting and loudly declared, “I don’t want to be held accountable by anyone,” and the sibling president was put on the spot.  He could have just fired his sister, bought her out, and kept growing the business.  But instead, he invested hours and hours, days and days, weeks and weeks to get a fair valuation, find buyers, and negotiate the best price.

The parent and each sibling ended up with a great deal of money…multi-millions.

So now, no one in the family is talking to the younger brother. He got them more money than they could have ever imagined. He was the only sibling actually working.  The reasons?  “[He] had embarrassed his siblings.  [He] should have tried harder.”

The sister spoke up recently and actually asked to help.  She didn’t want her children to think that she didn’t work/have a job or career.

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search.  2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

BEFORE You JUMP into a Joint Venture, a Strategic Alliance, a Franchise, Equity Deals, a Roll Up, an ESOP…

 

Recently, I’ve noticed more and more executives of midsized companies JUMPING into strategy implementation.

It’s too easy to fall in love with one strategy over another because you’ve heard a peer share a success story. “Hey, we could do a strategic alliance. George did it.”  Well written articles or webinars with great case studies can convert some people into raving fans of joint ventures or roll ups.  One of our clients became enamored with the idea of franchising his company after his wife was hired by a successful franchise.

The economy has created uncertainty.  Bright ambitious executives (perhaps you) feel like caged cats and are “itchy” for a change. It becomes very tempting to JUMP right into a strategy.  At least that way, something is happening, right?  Well, disruption might be happening that way, but your team will not understand the rationale behind the strategy you have jumped into. You lose credibility as a leader.  And successful implementation is risked. Some folks are JUMPING into strategies when they don’t know the differences between them, what each really involves, and the pros of cons of each. And then they are surprised when bankers are still reluctant to finance them.

Instead of jumping right into a strategy, this would be a great time to involve your executive team. Everyone could benefit from some concentrated learning.  Your controller could be asked to analyze the costs associated with strategies like franchising, roll ups, joint ventures, etc.  Your VP Business Development could be asked to analyze which approaches are being used in your industry and why.  Your General Manager of VP Operations could study pacing and look at what is involved with each strategy.  Everyone would be smarter and by the time you and your team select a growth strategy you will all have a much better sense of WHY it was selected.

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called The Growth Strategist™. She has won over two dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across four recessions.  Her midsized B-to-B service, technology and distribution clients get on…and then stay on…the published lists of the fastest growing privately held companies. All of her own service businesses (strategic planning, executive advisory, growth financing, radio show, speaking, search, etc.) help midsized companies in Achieving Accelerated Growth With Sustained Profitability®. Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer online radio program Growth Strategist Radio Show, at www.GrowthStrategistRadioShow.com, that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy of the week. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

The Most Costly Deal is the One that Drags On and On

Even with all of the information available on line, physical presence and being accessible still matter for most service firms. So you’ve concluded that your service firm should expand and become a regional entity with multiple offices.  Should you invest in executive talent for your headquarters and send your sales-oriented employees out into the field to attract new regional accounts? Should you leave your headquarters alone and recruit/hire branch managers who would then hire their own teams?  Should you consider equity deals or franchising to attract more entrepreneurial leaders for the new offices? Should you strike a series of strategic alliances deals with complementary companies that already have visibility in your desired expansion area(s)?  Or should you acquire competitors?

If you got tired just reading that paragraph, slow down and DO NOT start exploring which types of deals will be involved. There are great resources available to help you with the structure and logistics of various deals, but they only pay off once you are centered.

You probably need a bit more market research about the region.  What is the size of that market…REALLY? Who are your best prospects? Where do they live?  What do they read, listen to, and join? Whose advice do they take? Which firms are they currently utilizing? What is the difference between the results your firm achieves? Do you know for sure that the region NEEDS what you have to offer? What is your window of opportunity? How quickly should your expansion be accomplished?

You may end up with a combination of organic growth, acquisitions and equity deals. The best part is…you’ll know why.

Make sure you are good at market research and analysis before you lose yourself in deal making.  My 30+ years has taught me that the negotiation of deals between people who are not centered leads to indecision so the process drags on and on and on.  And those are the most expensive deals.

Stop Waiting for Teleseminars – Learn from Your Peers While on the Treadmill

Here’s a suggestion for busy Presidents/CEOs of midsized businesses (especially $20 – $200 Mil/yr) who

  • feel that your time is STILL your scarcest resource
  • recognize the need to feed your mind, learn, stretch, grow
  • find relevant teleseminars but then can’t participate because they run at the same time you are involved in important meetings
  • know you need to exercise but are going to the gym less often
  • have been tempted to attend an Inc. Conference on Growth…

Why not download free online radio shows onto your iPod to take to the gym? Take shows featuring interviews with your peers on the Inc. 500 list of the fastest growing privately held companies who are sharing success tips about the growth strategy-of-the-week. 

Most of you, the readers of my blog and Twitter tweets, know that I have been hosting a peer-to-peer-to-peer online radio show The Growth Strategist™ for 5 years now. We rotate through various geographic locations, industries, and growth strategies.  One week, my show might feature an interview with the President of a Singapore-based retail company that has grown through franchising. The next show may be with the CEO of a Kansas City-based manufacturer sharing success tips about how they’ve grown through acquisitions.

Many of the guests on my show are on the Inc. 500 (or at least the Inc. 5000) list of the fastest growing privately held companies. They are bright, ambitious, somewhat intense, fabulous leaders….just like you. The show is #2 in its category and attracts over 180,000 listeners.

I have LOVED hosting the show.  How can the discussion of growth strategies between people who actually live the journey EVER be boring?!

I open each show with some tips on the growth strategy-of-the-week gleaned from my 30+ years of experience as a growth strategist helping midsized companies earn and keep their spot on the Inc. 500 while increasing their profitability. Many of you know that I have also won over two dozen national and statewide “entrepreneur of the year” awards for the resilient growth across 3 recessions of my own midsized businesses. So I share examples from my own journey as well.

It’s been 5 years so my website, www.TheGrowthStrategist.com, and the station’s website (www.business.voiceamerica.com) now have over 200 downloadable shows (podcasts if you prefer) available for you to download onto your mp3 players and take to the gym.  Our research shows that most listeners do that or they listen to the show between 11:00 pm and 1:00 am as they do their last round of email “after the spouse and the kids have gone to sleep for the night”. The only reason you would break from an important meeting to listen to the live broadcasts each Tuesday at 11:00 am EST would be if you wanted to ask a question.  Most listeners send emails with questions to me and my guests following the shows. It’s NOT like traditional radio broadcasts where listening at the exact time of the live broadcast represents your only opportunity.

Why wait for teleseminars when you can download 5, 6, …sometimes as many as 10… timely peer level radio shows focused on a growth strategy you are using or have been considering, including

  • specialization
  • diversification
  • acquisitions and mergers
  • franchising and licensing
  • new products/new markets
  • joint ventures and strategic alliances
  • equity deals and IPOs
  • several others….

I did a series of shows earlier this year about ‘HOW TO CHANGE YOUR BUSINESS MODEL” and another on “THE CHANGING IMPACT OF REAL ESTATE ON STRATEGIC GROWTH DECISIONS”.

You can suggest topics, offer to be a guest, or recommend someone else you think might be an interesting guest.  The toll free number is 1-888-Aldonna and the email is Aldonna@AMBLER.com.

Growth Strategy Tip

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