Joint Ventures

Joint Ventures: Joint ventures involve companies of similar size working together with a goal of a specific product or technology; they have a specified timeframe with shared control. In a joint venture, the entrepreneurs retain independence but share resources, risks, and benefits.

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.

Selection of a CFO is Sometimes Your Most Important Decision

Ambler CFOHaving a complementary CEO and CFO has become a competitive advantage in the dynamic world of major hospitals.

Read health industry or business publications, and you’ll soon notice the name Amy Mansue. She’s the CEO of Children’s Specialized Hospital. NJSPOTLIGHT.com recently recognized Mansue as a “Top Healthcare Policy Analyst.” Plus NJBIZ includes CHILDREN’s SPECIALIZED Hospital on its list of “best places to work.” With an ever expanding geographic reach and 12 locations, CHILDREN’s SPECIALIZED Hospital’s services now include inpatient, outpatient, rehabilitation, long term care, medical day-care, early intervention, etc.

Mansue clearly leads the process of identifying opportunities for CHILDREN’s SPECIALIZED Hospital but is the first to point out that CFO Joseph Dobosh plays “an important role in the expansion.” Mansue particularly values that Dobosh is a “visionary.” 17% of the 1,200 fte report to CFO Dobosh.

TRINITAS CEO Gary Horan also speaks highly of their CFO, Karen Lumpp. “In this ever changing healthcare environment, a CEO needs a CFO with the background and expertise Karen brings to the table,” says Horan. TRINITAS is the result of combining Elizabeth, NJ’s three previously struggling hospitals. 10% of TRINITAS’s 2,000 FTE report to CFO Lumpp.

John Sheridan is the CEO, and Doug Shirley is the CFO of COOPER University Health Care in southern New Jersey. 400 of COOPER employees in this $900 Mil/yr entity report to CFO Shirley. Well known for its trauma center, COOPER has expanded dramatically over the past several years. “We recognized the need to increase our access to clinical trials,” said CFO Shirley. COOPER had already looked at 4-5 leading cancer hospitals when MD Anderson contacted COOPER. CFO Shirley played a key role in deal structure and making sure managed care rates were in place during the creation of the recently opened $100 Mil MD Anderson COOPER Cancer Center. “The two-way due diligence process spanned about a year,” said CFO Shirley.

These CEOs and CFOs agree that today’s hospital-based CFO must have extensive experience handling major projects. The CFO doesn’t just “crunch numbers” any more. Dobosh, Lumpp and Shirley all view their CFO role as predominantly focused on major strategic initiatives. It is very telling that these hospital CFOs view ICD 10 compliance as a “short term project.” CFO Lumpp shared that hospitals complying with ICD 10 coding by October 1, 2014 involves “quadruple the information, a big learning curve and dual coding.” CFO Dobosh shared that the project to transform hospital records to a MediTech paperless system involved “a few years and less than $6 Mil.” Clearly, changes in coding and going paperless would have been viewed as major projects for a CFO not very long ago. When CFO Shirley isn’t structuring a joint venture with the #1 hospital in the country, he is leading COOPER’s Lean Six Sigma initiative or teaching niche surgeons about supply costs. When CFO Dobosh isn’t structuring the financing for a new service and/or location, he is “retiring debt, refinancing to direct placement or thinking about Triple-B bonds.”

Clearly, today’s hospital-based CFO must have strong communication skills. No longer do CEOs and board executive committees consider strategic options and then consult the CFO. The CFO is “at the table.” Hospital CFOs are expected to make frequent presentations at executive team and board meetings. It can take as long as five years for a CFO to earn trust in a hospital setting, so the CFO must demonstrate that he/she is motivated to help find ways to help other professionals use state of the art technology, treatment techniques, etc. Today’s CFO cannot sound like a negative bean counter.

Perhaps more than in any other industry, health care-based CFOs must be level headed and accept that the rules will constantly change. CFO Lumpp says that hospital CFOs must “replace the word hospital with health care systems.” The reality is “by the time a brick-and-mortar project is built, it will already be out of date. Even insurance could collapse into a new system,” predicted CFO Lumpp. Apparently, she is correct given the recent headlines about Saint Barnabas’ plan to introduce its own health insurance plan.

It is a challenge given the limited time available, but health care-based CFOs must commit to continuous learning. CFO Shirley reads industry publications like Healthcare Financial Management (HFM) Magazine, Healthcare Executive, Modern Healthcare and HealthLeaders Magazine. CFO Lumpp warns that a health care CFO’s time can “too easily be chewed up by simplistic popular ideas that don’t consider the 40+ variables involved.” CFO Dobosh is convinced that his auditing background, experience as a referee for high school basketball and leadership level participation in the Healthcare Financial Management Association (HFMA) have helped him. He suggests that someone who is interested in becoming a health care-based CFO should “look for mentors and get experience handling major projects within the industry.”

Clearly one of the most important decisions made by a hospital CEO is the selection of the CFO.

Do You Still Have a “Stay the Course” Board of Directors?

Visionary LeadershipWe can’t think of an industry that is facing more change… turmoil actually…than healthcare. The Affordable Care Act. A fragile economy. Dramatic advances in research and technology. Heightened patient expectations. The tenuous relationship between healthcare providers and insurance companies. Hospital profit margins have been skinny for a long time. Make one bad decision these days and you’re gone.

In the 1990s, the primary strategy for most hospitals was to “stay the course.” If your hospital had been a general community hospital, you kept your locally focused board of directors, upgraded wings and services based on donor patterns, and struggled with the burden of providing so much charity care. Remember? One of the first generally acknowledged system-wide breakdowns was that hospital emergency rooms were replacing family physicians.

In the 1990s, if your hospital had already declared a specialty, investment and growth was incremental. A few major institutions declared specializations or leadership positioning and invested. Many perceived those bold moves as cocky at the time. But the investments made during strong economies have an impact on what happens to an institution during weak economic times. Think about MAYO, the Cleveland Clinic, Sloan Kettering, Johns Hopkins, and Massachusetts General.

It is very difficult for the leadership of “stay the course” hospitals to now step up, make very difficult decisions, commit to specializations, and compete. And often it is particularly difficult for the leadership of those hospitals to change the composition of their boards of directors and/or their executive teams.

Visionary leadership is needed. What would you do if you were the Chairman of the Board of one of the few hospitals located in the poorest/most dangerous city in the United States? Could you have envisioned, negotiated, funded, built, and promoted the new MD Anderson Cancer Center at Cooper Hospital in Camden, New Jersey?

Is your board composed of visionary leaders with connections, skills, and determination? Or are they “stay the course” incremental fearful followers?

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.”

Look at Growth Strategies Through a Stronger Lens

Signing Agreement_ING

During a breakout session on “Choosing Business Models” at the IMC GROW! Conference in Las Vegas, it became apparent that several attendees already utilize or are considering strategic alliances and/or licensing deals. I’m more of an optimist than a pessimist, but I did find myself calling up sad stories and providing warnings.

Licensing can be a wonderful idea for a service firm that has solid content. Other professionals who don’t have great content but love to speak, train, consult, or coach pay a reasonable fee for your permission to utilize your content. You can provide training and install some form of quality assurance program to protect the quality and your company’s reputation.

However, the problem is that most people who pay licensing fees to use someone else’s material are not business-minded or entrepreneurial. Before you know it, licensees are calling you to ask for referrals of clients or assistance with selling.

I like reviewing any licensing proposal through the lens of franchising. You may still choose to only license your content, but looking at geographic considerations, assigning a value to your marketing, reviewing the assumptions behind business management so everyone can make some money, thinking through legal protection for everyone involved, clarifying responsibilities, etc. can strengthen a licensing arrangement. I’ve seen people opt for franchising once they look through that stricter lens.

The same thing happens when a strategic alliance is being proposed. What would prevent the participants from fully committing to a more formal joint venture? Those issues are what destroy so many strategic alliances.

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?
——————————————————————————————————————————————
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?

 
 
 
 
 
 
 
 

Counter-Intuitive Logic When Choosing Strategic Alliances or Joint Ventures

In the typical joint venture, all involved parties spell out the goals, quantify the financial investment and expected ROI, put structured project management in place, assign leadership, and measure progress. Lawyers and contracts are typically involved so everyone’s interests are fairly represented and protected. Joint venture partners hold one another accountable.  In my experience, most joint ventures are time limited.  However, when they are successful, the venture partners tend to look for ways to continue as venture partners.

It’s odd, actually.  In most of the joint ventures in which our clients have participated, they could well have served as their own attorneys.  Bear with me here.  I am not disrespecting the value lawyers bring to deals. I am simply observing that when the leaders of a few complementary companies decide to work together to accomplish something they clearly could not have done alone, the Presidents or their CFOs can (and do) summarize the terms of the relationship on one sheet of paper. When there is a great fit and clarity of complementary purpose some of the formality feels redundant.

OK.  So what about strategic alliances?

As a President of a midsized business you undoubtedly know that joint ventures are more structured than strategic alliances.  Perhaps you have experienced fuzzy goals, little reference to ROI, open ended expectations for continued investment, no project management or progress measurement, etc.  Of course all of that lack of clarity invites participants to have “one foot in the door and the other one out.” It’s no surprise that the over whelming majority of strategic alliances end by simply drifting away from one another.

Ironically, strategic alliances are most often forged around marketing.  (As a reminder, one of my master’s degrees is in business marketing, so don’t throw stones at me here.)  Marketing is notorious for fuzzy goals, too little accountability, not enough focus on ROI, subjectivity, and inadequate project management.

Wouldn’t we all be better served if we used the rigor of joint ventures when it comes to shared marketing?  The elements of the JV process could bring the clarity needed to drive far more marketing-related successes.

Counter Intuitive Logic When Choosing Strategic Alliances or Joint Ventures

 
 
 
 
 
 
 

Keep an Open Mind during M&A Negotiations

A prominent competitor approached our consulting firm saying that they were potentially interested in acquiring us.  At the time, we viewed ourselves as the acquirers rather than the acquired.  But we saw the situation as a learning opportunity so we met with the leaders of the larger firm. The process shined a light on holes in our strategic and staffing plans.  That didn’t feel very good at the time, but it was a huge favor.  The process also helped us understand the value of our innovation and I.P.  Very important partner level discussions were sparked for us by our interaction with the larger competitor. Although we turned down their acquisition offer we remained convinced that we hadn’t wasted one minute going through the process.  It was very illuminating.

A few current clients are led by Baby Boomer aged owners. We are encouraging them to engage in exploratory conversations with their counterparts in related companies.  Over the years we have discovered that a maximum of six conversations are needed to finalize a new relationship (merger, acquisition, joint venture, subcontracting, etc).  And we encourage our clients to have a minimum of two discussions so they remain open minded. The conversations serve multiple purposes…learning, surfacing opportunities, imaging the future taking a different form, etc. The conversations often start with a meeting over breakfast at a diner in a neutral location.  There is no reason to prematurely alert employees or customers to the fact that they are talking with one another.

For one of our clients, the initial diner conversations between complementary firms sounded like a merger might be possible, but the proposed terms that resulted looked more like an acquisition or asset purchase. The younger owners of one firm had jumped to the conclusion that the older owners of the other firm were ready to retire.  Talk about illuminating!  The acquisition won’t be happening this year, but the door has been left open to reconsider later.  In the meantime the “older owners” came away from the negotiations with renewed commitment to their business and determination to raise their prices, upgrade their technology platform, and fill a job vacancy. The fact that a competitor viewed them as “ready to retire” and “no longer viable” was the wakeup call they needed.

Are you initiating conversations with the leaders of complementary businesses to explore strategic alliances, joint ventures, acquisitions, mergers, or roll ups? And when you do meet with peers, are you staying open minded enough (not focusing on the punch line) so you can learn? Surprisingly, the process can surface ways to improve profitability, candidates for key positions, client or project opportunities, or growth financing.

 

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 achieve 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.

Financial Privacy is a Benefit of Joint Ventures

If you will need a loan or line of credit, of course, you will be revealing your financial information to bankers, the EDA, the SBA, etc. But if you are launching your second or seventh venture, privacy about the details of your first company can be maintained.

Recently, a few of our growth strategy clients have been reluctant to even consider joint ventures because they assumed they would have to divulge all of their financial information.  In one case, the client further assumed that any potential joint venture partner would try to take advantage of them because they have been growing and generate a nice profit. “If anything goes wrong or money is needed, won’t they just conclude that WE would be the partner to step up?”

Over the years, I have become a fan of joint ventures over other arrangements in part because the focus remains on the future and on the specific venture.  Each participant agrees to invest. The investment in the joint venture can take many forms. Time. Money. Products. Services. Tangible assets. Influence or access. Distribution of proceeds, profit, or debt mirror the value of each participant’s investment.

I am in the process of launching my eighth enterprise at the moment.  It is different from previous launches in that it is an economic development initiative. If/when we get it off the ground, it would be one of New Jersey’s first public benefit corporations. Two companies have invested $50,000 each and we are asking the other participants to now step up.  Whether either of the first two companies is rolling in money or dead broke isn’t relevant. Companies that want to benefit from working together invest in proportion to what they want to see in return.  I have worked with over 50 corporate sponsors over the years, and have concluded that the same concept applies for them.

 

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 achieve 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. 

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