Investment Outside of the Core

Investment Outside of the Core is the process of identifying a new product or service through research and later development based on the needs of the market you are serving. In order to fund this development, a business may need to reach out to new sources in order to finance the investment.

Questions To Ask Yourself Before Investing In Someone Else’s Business

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Often successful entrepreneurs become interested in investing in other companies.  Not just the stock market.  They are curious about the role of private investor or angel investor.  What would it be like to be a member of the board of another company and have some “skin in the game” but NOT have to run the business on a day-to-day basis?  The process of screening potential investments, learning new roles, doing due diligence, and taking some chances is very enlightening for entrepreneurs.  Becoming an outside investor is a career change for some. You aren’t just evaluating the companies, you learn about yourself, your security/risk ratio, your skills to influence decisions, etc.  Many never realized the complexities involves with board service. Some, who thought they knew a great deal, start to recognize the limitations of their experience having only led one midsized company.

Here’s an excerpt from an email I recently sent to a client who is venturing into the world of “private investor.”  See if any of the questions I posed for him resonate for you:

Apparently, you can see that XYZ is well positioned for growth, is in a rapidly expanding industry, and their products/services provide superior value.  Your emails suggest that your primary questions, at this point, are more about how an investment in XYZ should be structured.

 

  1. Ask yourself how much money you are interested in earning from your interaction with XYZ, Inc. over what period of time. Is this a 5X, 7X, or 10X opportunity?
  2. How much money are you willing to risk on XYZ over what period of time? How much of your time and effort are you willing to invest?
  3. See if you can quantify your value to them.  Would having your input reduce their need for a full time (real) CMO, COO, CFO, or CIO for a while?  Would your influence result in more revenue? More profit?
  4. What part of the earnings you hope to achieve (see #1 above) can come in stock (to be turned into money at a time of your choosing) and what part should come as payment to you for board (influence, pressure, advice, C level counsel) participation?
  5. How many shares of stock you get is driven by the valuation and the investment you make.  How much stock would you need in order to influence results?
  6. What valuation process do you prefer and trust?
  7. Would you base all of this on today’s valuation, the projected valuation for 5 years from now, or a combination?
  8. Since leadership seems to be your primary question, what can you do up front to learn more before investing? 
  9. What would you do if, in a few years, you concluded that another person should become the President? As a board member, that subject is always open for discussion (is the primary responsibility of the board, frankly).  When you speak with other board members before investing, listen carefully to their reactions and responses when you ask direct questions about the quality of leadership that is currently in place.
  10. Try to take charge of this process so you see how the executive team responds. We’ll have phone conversations, exchange emails, edit drafts. But start with YOUR numbers. Ask your questions. Enjoy surfacing what seems important to you. This is about money, but it’s also about your life, your interests, your skills, what you want to learn, if it complements other things you are doing, and with whom you wish to be associated. 

 

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.  2013 is Ambler’s 9th 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.

A Technique to Screen Business Investment Opportunities

Lots of very bright people get burned by the assumption that every business owner who has learned how to make decisions about his/her own company can objectively evaluate the potential of someone else’s business.

If you are regular reader of this blog or one of the 200,000+ business executives who view weekly broadcasts of The Growth Strategist® peer to peer talk show, you are familiar with our tagline ACHIEVING ACCELERATED GROWTH WITH SUSTAINED PROFITABILITY® and you may also already know that the secret to success lies in reversing the phrase.  Know what drives your profitability, do what is needed to sustain it, then growth strategies (like acquisitions, new products, or geographic expansion through franchising are relevant)…then you can step on the gas to accelerate.

OK. So what if you used that tagline as a technique to screen potential investments in other peoples’ companies? It takes some practice, but it does help.

Can you tell what REALLY drives the profitability of a business?  The answer is fairly evident for some companies.  Innovation comes to mind for APPLE®.  But it’s not so clear with other companies.  What has driven the profitability of H&R Block® all of these years?  Being able to train people quickly? Flexible staffing?  An understanding of taxes?  Simplification?  See, the answer is not always so obvious. That is the first question when you consider investing outside your core business.

In my recent interview with Eric Shepocaro, the CEO of TelX, it became clear that their focus on how large clients can benefit from leveraging TelX’s technical advances has driven their profitability.  It is not just about creating new technologies, building new data centers, or going to the cloud for the sake of going to the cloud.

Once you have your arms around what drives profitability, analyzing what is involved with sustaining that factor is critical.  What could interfere with APPLE®’s innovation? What could slow down H&R Block’s ability to simplify and replicate? What could distract TelX from its focus on customers’ leveraging their technology?  The profitability of businesses that are based on helping companies comply with laws, regulations, rules, and quotas can be compromised by the slippage in ethics during recessions.  Profitability won’t be sustained if the government or justice system can’t follow through on enforcement.  You would clearly need to dig deeper before investing in a business built around compliance.

If you become convinced that the answers to the first two screening questions (criteria) are sound, then you can decide if the proposed growth strategies serve those answers well enough (are congruent). 

 

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.

Sustainability and Profitability Precede Growth Financing

Our first contact from executives of privately held mid market companies often comes in the form of inquiries about growth financing. Some know I lead The Service Industry Fund. Others have read about the intermediary role we play for clients when we identify good sources for growth financing among the various private investor groups, venture capital firms, funds, and angel networks. Lately, more and more of those requests have seemed out of sequence.

One company is operating in a rapidly growing global industry. Although they provide a superior product and service, they hadn’t been growing as quickly as their competitors.So they became convinced that growth financing to fund improved marketing was the next step. We were glad that they took our suggestion to make sure that they are generating sufficient profit from their products/services before pumping outside funds into their business.  It turned out that they were losing money on 1/3 of their accounts, and the largest of their four revenue streams only generated profit in two customer accounts. IF they had qualified for growth financing and IF they had attracted a large number of new customer accounts, they would have quickly imploded. They weren’t undercapitalized. They couldn’t afford to invest more  money in their marketing campaigns because they weren’t generating enough profit.

This is a huge reminder that the secret to accelerated growth with sustained profitability is to reverse the phrase.  You must know what drives your profitability, then be able to sustain it before focusing on growth strategies. And acceleration comes last.  Ironically, they were lucky that their competitors had been growing faster.

With focused effort, their profitability problem has been resolved. As I write this blog, the growth financing deal is being processed. Instead of marketing, the funding will be focused on the acquisition of state of the art technology. Not only will technology help this company continue to  provide superior services for its customers, it will help sustain their profitability as they expand.  The 13 investors of The Service Industry Fund would not have been interested at all if sustainability and scalability hadn’t been addressed first.

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 4 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, and search) help privately held midsized companies in Achieving Accelerated Growth With Sustained Profitability®. Ambler is in her 8th year hosting a weekly peer-to-peer-to-peer online program at www.growthstrategistshow.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. Family owned businesses are being emphasized in 2011. Ambler is in the process of launching her 8th enterprise. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

[video post] Attract Young Employees…and make it worth doing

Attract Young Employees…and Make it Worth Doing

Supervising Generation Y employees (born 1977 – 1990) and Millennial employees (born 1991 – ) poses several challenges.  One of my clients, who has become fairly frustrated, says:

“It isn’t just that younger employees have short attention spans and lack social skills and basic manners.  The biggest challenge we see if that today’s young people exhibit an odd mix of insecurity AND cockiness.  One minute they are convinced they know everything and should be in charge.  The next minute, they don’t know very basic aspects of the work to be done.  They simply don’t know what they don’t know.”

“As a result of that one factor, younger people think they deserve fascinating high paying positions with a degree of independence and authority…before they have done anything to earn those jobs. And if they can’t easily land one of those rewarding jobs, they actually give up and settle for entry level roles at fast food restaurants.”

If your business is experiencing something similar…don’t ignore it. More and more executives are starting to realize that the disconnect between various generations will soon stunt their business growth and profitability.

Many younger people crave the opportunity to create. Installing a highly participative interdisciplinary approach to product development is one way to reach and retain young employees.  No matter what their core jobs are, younger employees can often provide new insights and ways to utilize technology.  If your Baby Boomer managers can get past the negative/provocative manner used by Generation Y and Millenials to make suggestions (“I don’t know why you don’t…”), your business can end up with some exciting ideas. If the cross functional product development groups are then expected to go far enough with their analysis that they can present actual business proposals, your younger employees have the opportunity to learn what they did not realize they didn’t know…and have a reason to stay.

 

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.

How to Move Your Market from Complaining to Placing Orders for Your New Product

Companies like APPLE® haven’t waited for customers to specifically ask them for completely different telephones or even faster, thinner, and lighter products.  Folks from that corporation observe how people work and communicate and then create products to address the problems and wishes before the customers even have a chance to complain about it.  APPLE® has been so good at innovation that their products haven’t just responded to a recognized need the products create a need.

But the reality is…most of us are not APPLE®.

We can’t all create a need, but if we wait until customers actually ask us to provide a new service or product, those customers have been frustrated for a long time.  We run the risk of competitors figuring out how to address the problem before we start to develop a product/service. The company that only provides a new product when it’s been directly requested is playing it safe, ends up with a smaller portion of the available business, and is viewed as conservative and reactive.

When it comes to product/service innovation, there is an important zone between “bleeding edge – create a need” and “reactive – wait to be asked.”                

If your company interacts with its customers, conducts focus groups, asks about where the clients are headed, listens to customer complaints and frustrations that are unrelated to your company’s existing products/services, you will have a sense of the “felt pain.”

The best products/services of tomorrow address today’s’ felt pain.

In addition to developing a product/service that fixes a problem, it’s important to invest in marketing.  During the complaining phase, customers aren’t asking you to provide a product/service….in part because they don’t believe anyone will address their problem. They don’t know you have the capacity to do anything. They have no idea that the new product/service exists. How can they request it from you?

I am now in the process of launching my 8th enterprise. This one involves collaboration among several competitors who are industry leaders.  Why would customers believe that is even possible or know to request it?  The new business concept lowers the price of a mission-critical service so midsized companies can actually afford to have the excellent product/service that only major corporations have been able to afford.  Why would the customer ask for that when it doesn’t seem possible to them?

The strongest businesses introduce new products and services that truly address felt pain…and they do so boldly to move the market place from complaining to placing an order.           

 

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 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, talk show, speaking, search) help privately held midsized companies achieve accelerated growth with sustained profitability™.  Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer on line talk show at www.Business. VoiceAmerica.com and www.growthstrategistshow.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. Family owned businesses are being emphasized in 2011. Ambler is in the process of launching her 8th enterprise. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

If You Decide to Take a Chance and Develop a Truly Innovative Product

A lingering recession is actually a very good time to introduce exciting new products.  Continuing to provide the same old thing just doesn’t do it. But a product that truly represents “value add”, advanced technology, or ease of use garners the attention of even the most cash tight customers.

But this may be the first real innovation your well established midsized company has done in a long long time. If so, it pays to focus your attention on a small group of your most desirable customers (the sweet spot). Beta tests can be done for people you truly care about and the product can be tweaked until it is really ready to launch.  A broader launch is much easier and more successful if you can confidently brag about the premiere customers who chose to embrace your new product.  Frankly, most customers are followers and won’t take a chance on a new product until leaders endorse it. And the percentage of followers increases during tight economic times.

Breakeven and ROI can be difficult to project if product development isn’t an ongoing part of your daily lives, so it pays to learn from companies with a track record of successful product launches. They immediately measure the time, effort, and cost involved in developing a new product and winning first wave early adopter premiere customers.  And then they measure the time, effort, and costs associated with attracting their followers.

If it’s been a long time since you launched a truly innovative product, you may not like the numbers that are generated when you measure these things but you do need to know. It’s important to have some faith in your capacity to improve.  With information, each subsequent product launch can be more cost efficient.   The ROI on product launches becomes easier to calculate with each innovation.

 

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 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) help privately held midsized companies achieve accelerated growth with sustained profitability™.  Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer on line program at www.Business.VoiceAmerica. com and 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. Family owned businesses are being emphasized in 2011. Ambler is in the process of launching her 8th enterprise. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

It’s Too Easy to Proclaim that Your Company is a Leader

Picture the scene. It’s the annual strategic planning retreat at the country club near your corporate headquarters. And the question of POSITIONING comes up.  Will your company be the LEADER, a FOLLOWER, a CHALLENGER or a NICHE player?

 

It’s just too easy for the group of executives to proudly proclaim “we are the industry leader!”

 

Success and profit can be made by being a challenger.  Someone else takes on the expense and risk of creating new product categories.  You look for ways to improve them. Manufacturers have figured out ways to make sweeter smelling detergents or shampoos without sulfates.

Serving niche(s) can lead also generate success and profit when you become adept at tailoring products/services for specific groups of people.  Translating educational products into Mandarin has value.

What if you became really good at identifying trends?  You apparel company could follow fashion trends and provide dresses that resemble those worn at the recent royal wedding.  And you would know which years animal prints will rotate in or out of fashion so your warehouses wouldn’t end up with tons of unsold product.

Once you publically declare a commitment to being the leader, you have taken on a huge responsibility to follow through.  Just imagine the difficulties Johnson and Johnson® Corporation faces these days.  Lots of companies have to deal with product recalls.  But the public trust in Johnson and Johnson® was huge. Their executives and managers must be dying a thousand deaths inside as they work harder and harder to not only fix the problems while they also work to regain public trust. APPLE® certainly had to move quickly when its upgraded I Phone® had too many dropped calls. Mattel™ Corporation had to respond quickly recently. Didn’t we all watch to see what BP Oil Company would do during the Gulf Spill?

This can happen to midsized companies too. Don’t assume you are below the radar. Imagine if your company had a program that helped businesses attract and retain top talent, but you couldn’t retain your own employees? You would feel like a hypocrite. What if your company’s reputation was built around product innovation and you hadn’t had a successful new product launch in several years?  What if your marketing emphasizes ethics or “eco-friendly” and then folks learned that your lead-based products were being manufactured in unsafe child labor sweat shops?  Sound preposterous? Those exact things happened to a few celebrity owned companies.

If you claim industry leadership, be prepared to invest, follow through, be consistent, and pace your growth.

 

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 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) help privately held midsized companies achieve accelerated growth with sustained profitability™.  Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer on line program at www.Business. VoiceAmerica. com and 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. Family owned businesses are being emphasized in 2011. Ambler can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

When the “Internal Sale” is a Bigger Challenge than Winning Over Customers

The business development director speaks with prospects and customers and feels that folks have been candid with him. He is convinced he has heard a pattern of need.  He wants the company to provide a new product/service for the customers. And he is excited!

He comes to an executive team meeting enthusiastic about the new idea. But then he feels punched in the gut by the negative response.

How can we afford to do THAT?

I sure hope you didn’t promise anyone that we can do THAT right away!

How many people said they wanted it anyway?

Oh, THEM…they always want more and more.  And then they don’t want to pay more.

It can be more difficult to sell a new product/service idea within your own company than to convince customers to buy it. This problem exists in lots of midsized privately held companies, but is even more prevalent in family owned businesses.  Like most problems, the solution depends on the source of the problem.

If the negative reaction reflects a fear of failure, it pays for the business development director to take the new idea to each executive one at a time.  That way, each person can think through and discuss concerns and not feel put on the spot.  Plus the business development director can convey that his confidence in each person is one reason he is excited that customers have expressed an interest in something new.

If the negative reaction flows from concerns about money, discussing costs and ROI with the CFO before bringing a proposal to the executive team could diffuse worries.

Sometimes the negativity stems from long term memory about previous times when the business development director was excited…only to find out that customers didn’t really want what he was proposing.  Some executive teams hold grudges or never forgive past mistakes. If that’s true in your company, the business development director probably must directly and calmly convey how the current proposal is different (without being defensive).

Remember, negativity is often fueled by group dynamics.  No good idea is worth making your business colleagues look bad, feel incompetent, or become embarrassed. If you have an exciting idea for which you are invested in an affirmative response, take the time to do individual discussions, anticipate/ address objections, ask for assistance…and resist the temptation to become strident, adversarial or defensive.

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.

Is the “Family Owned” Sign in Front of Your Business Actually a WARNING?

My sister likes jewelry, so I went shopping at a gemstone store recently.  Trust me on this.  The fact that this business is family owned was NOT a benefit to me as a customer.  The jewelry designer’s mother is clearly tired of catering to his demands.  But she is his mother and apparently feels STUCK there. His wife was equally miserable!  Apparently the purpose of this family owned business isn’t about gemstones, customers, money, or family.  It was all about a prima donna jewelry designer who had enslaved his relatives.

I know another company President who insists on paying all 7 of his offspring the same salaries despite the fact that one son is the full time CFO and one daughter is a part time marketing clerk. Can you imagine how non family staff members feel and how they view their compensation?

I know a Mid-Atlantic based company that has a Colorado branch now. They were sending so much money to support his snowboarding, why not throw a bit more money at it?

Sometimes the real purpose of being “family owned” is to provide jobs for otherwise unemployable offspring.

As the New Year starts, pause for a second and reflect on the BIG decisions made by your family owned business in 2010. Which ones were made to compensate for non-performing relatives? Which decisions were an attempt to force accountability and fairness?

If the purpose of your being “family owned” translates into honesty, excellent customer service, informed employees who truly understand products/services, a sustained commitment to quality and innovation, etc…then the public will care that you are “family owned.”

90% of privately held companies view themselves as “family” businesses. So this year, I’ll be emphasizing growth strategies for family owned businesses and sharing ways to make sure that “family owned” is an attribute…and not a warning.

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