Building Business Value | Corporate Management Strategies

What are You Filling Your Mind With?

Last week I was in Miami and spent some time with a group of Investment Bankers attending the National Association of Certified Valuation Analysts (NACVA).  I had just posted a blog on the importance of cultivating an "abundance mentality" when  I had a conversation with a banker from Chicago.  Charles Andrews is the Managing Director of The McLean Group's Chicago office and one of the most well read business people I know.

Chuck volunteered that he always kept two magazines in his brief case.  One was the "The Atlantic" and the other was "Inc."  Chuck always wants to stay in the know and he is interested in more than just sound bites on today's major business and world news.  But he suggested that a periodical diet heavy in editorials and op ed pieces on today's headlines will leave you lethargic and depressed.

The anecdote for the abject dreariness of "The Atlantic" headlines, according to Chuck, was "Inc" magazine.  He argued that "Inc" was filled with positive stories of innovation, turn-around ventures and entrepreneurs living the American dream while the headlines of the "The Atlantic" made you want to hit the snooze button, stick your head under the covers and call in sick!

I was not quiet convinced so I put my crack team of researchers on the job of finding out what periodical was more prone to get your juices flowing.  I'll let you be the "decider!"  These are the topical headlines for the business section of the June 7^th publication of "The Atlantic"

The Case Against More Stimulus

Hey Americans, How's That Massive Debt Coming Along?

Can You Guess How Many Studies Financial Reform Requires?

Death by Regulation

Hungary Says It's Books Were Cooked

Wow, hand me my 16-guage Martha!  Not exactly motivating copy!  Lets see how "Inc" looks at the world.

Is Chile the Next Silicon Valley?

Mastering Your Elevator Pitch

4 New Killer Sales Apps

Wal-Mart Gets Creative on Employee Retention

The Best Industries for Starting a Business

Chuck may have a point.

Now I know this is an apples to oranges comparison but the point of the discussion is that you have to balance your diet.  If you live on a diet of "The Atlantic", Fox News and the "Wall Street Journal" you may begin to think Chicken Little was right!  On the flip side, entrepreneurial optimism is both the greatest asset and one of the biggest faults for any CEO.

Perhaps Aristotle, St. Ignatius of Loyola and Benjamin Franklin were right!  Everything in moderation!

Don't Just Sit There ... Do Something!

Decision making during the best of times can be challenging for many of us.  Change the environment a bit by introducing a tight credit market, skittish consumer behavior, and schizophrenic suppliers and decision making can literally put us in a deep freeze.

This is the first of a five part series to help executives break through the ice and begin making the tough decisions that need to be made.

Are you just sitting there these days?  Isn't that how we all feel.  Waiting for things to get better.  Credit is tight, unemployment is as high as it has been in thirty years and all of a sudden, consumers are saving; the perfect recipe for a long stormy business cycle.  During this economic tsunami, employees are looking to the bow of the boat to see if their captain has seized the situation and is shouting out orders like Russell Crowe in "Master and Commander" or cowering below deck and frozen by the gravity of the situation like Humphrey Bogart in "The Caine Mutiny."

During the burst of the dot.com bubble, a CEO friend of mine running a mid sized IT company said that every decision he made during that tough period was at least a quarter too late.  His entrepreneurial enthusiasm, that base emotion so necessary to build a company was actually clouding his judgment.  No matter what he did, it seemed like it was a day late and a dollar short.  So the question is, did the lessons we learned in 2000 give us any insight to the best way to navigate our current recession?

Today, business leaders have almost no room for error.  The effects of making a late decision or making no decision at all are penal.  If you think you may need to cut your overhead next month, you probably should have done it last quarter.  Most CEO's are very good at making decisions, that's not the problem.  The challenge leaders face today is not their inability to make decisions, it's their ability to make informed decisions quickly.

During the last decade, you could make a few mistakes along the way and still find yourself able to compete.  You could hire the wrong sales VP, roll out a product that fell flat or overpaid for a new financial system.  None of these decisions would have been fatal.  You didn't have to have what business authors Kim and Mauborgne call a "Blue Ocean Strategy."  Demand was high and you could work yourself out of many poor decisions.  I don't have to tell you that times have changed.  You may only have one chance now to make the right decision; why leave it to chance?

You may have heard the adage, "you can have it all, you just can't have it all at the same time."  This is the hard reality we live in now.  After years of managing in a world of abundance, it is very difficult for leaders to make the switch and prioritize their decisions.  Which area of the business requires the most focus?  Where should you spend your limited resources and where is the best bang for your buck? How much risk is associated with each potential investment?  Maybe I can't invest in all these initiatives at the same time!

Executive decision making during troubled economic times have dramatic results.  As Teddy Roosevelt reminds us, "the credit belongs to the man (or woman) who is actually in the arena."  Faced with increases in energy costs and lower demand for their products and services, businesses are operating on thin margins.  Battling with cautious bankers over lines of credit and short-term debt is forcing leaders to operate on existing cash flow.  It has never been more important to make the right decisions.

Over the next four blogs we'll talk about specific techniques that can put you on the track to decisiveness!

Making the Commitment to Build Value

Nothing gets employees' eyes rolling like a CEO returning on Monday morning from a management seminar with a brilliant new initiative by which the whole company will now be run. If you're going to get your company truly committed to the idea of building enterprise value, you've got to get buy-in from everyone on board. Everyone must share the vision, so you have to find the algorithm for convincing really good people that they want to be part of this process.

How do you, as a C-level executive, create a sense of shared ownership with the entire leadership team?  How do you get heads bobbing over this methodology for building value, so that all the thought and dreams actually come to fruition?

You and your leadership team must commit.

Commitment is actually threefold - it's emotional, intellectual, and spiritual. Most people don't do anything unless they feel emotionally connected to the process. They don't get married, buy a car, take a job, run a marathon, have a child, or do anything of importance without first having an emotional commitment to the process. People may intellectualize and rationalize 'til the cows come home, but they don't do anything unless they have a gut-instinctual, emotional desire for doing it.  And it must impact them directly.

For example, the award winning PBS series Frontline ran the "Poisoned Waters" documentary again this week and in it environmentalists talked about changing their message from "saving the Chesapeake Bay" to controlling traffic, fighting gridlock and improving the local living conditions.  It turns out people will make huge commitments and sacrifices if they personally can see and feel the need for change.  Saving the Bay is a great cause, but it seems so distant for most people in the watershed.  Environmentalists have learned that moving people to control traffic, growth and gridlock will help the bay without ever making that plea.

So before you start marshaling arguments and building compelling intellectual reasons for making changes, concentrate on getting emotional buy-in first. Keep in mind that your staff and fellow executives are emotionally committed to doing things the way they've always been done, and they will use their powers of reasoning to swat away your brilliant new initiatives. What do you reach for first, their hearts or their minds? Without question, you should appeal to their hearts. Otherwise, their minds will be your worst enemy.

Five Mistakes to Avoid If You Want to Build Superpremium Value

Most companies sell at subpar or par value, meaning that their ultimate price tag is somewhere between three to five times EBITDA (earnings before interest, taxes, depreciation, and amortization).  Poorly run companies sell for a smaller multiple, while companies that are run about as well as their average competitors might go for four or five times their net earnings.  But just as superpremium ice creamscommand a higher price in the marketplace, some companies sell for a superpremium of nine to ten times EBITDA. It's like the difference between generic ice cream and Häagen-Dazs. 

So the questions are these: 

Why do some companies command that super premium price while others don't?  And if you are a C-level executive of a $10 million to $100 million enterprise, what do you need to be doing right now to prepare your business for an exit at a super premiumprice?

And just as important, what do you need to stop doing?

Here are five mistakes businesses make that practically ensure sub-par valuations when the founders or the C-level executives are ready to exit.  Keep in mind, building business value should be top-of-mind for every leadership team and is not just associated with an exit strategy. So, since building value is your number one priority, how many of these issues apply to your business?

1.  Your strategy is a secret.

You've got a new mission and direction as a result of your most recent offsite meeting. Great!  But how are yougoing to get the word out to your one hundred and twenty employees?  Are you getting posters designed to illustrate your new mission, vision or purpose?  Are you stuffing paycheck envelopes with a document thatlists the five new goals of the organization?  Most mid-market companies don't communicate these ideas verywell.  If a vision exists, the CEO fails to share it with others.  Or if she does try to get the word out, she does so using what the Reverend Bill Hybels of Willow Creek Community Church of Chicago calls the "Mt. Sinai approach."  Moses came down from Mt. Sinai with the two tablets denoting the Ten Commandments and while that top-down approach might have worked for Moses, it doesn't work in today's business climate.  Keeping the strategy a secret is a recipe for trouble.

2. Your business plans are ego driven.

Normally, a leader's greatest attribute is unbridled optimism.  As retired General Colin Powell says, "Perpetual optimism is a force multiplier."  You would rather have Colin Powell lead you into battle than Eeyore, but you also need to deal in reality.  The unbridled optimism that turned a business dreamer into a business leader has a downside.  It can keep executives from confronting the hard facts about their organizations. Sometimes leaders sweep so much bad news under the rug that they can hardly see their own desks. Optimism is terrific, as long as it is tempered by an ability to deal in reality -  a trait not all leaders have.

3. You’ve got the "I'd like to thank the Academy"syndrome. 

It's great when companies get awards - everybody feels good.  The problem is that the red carpet high can become an addiction for a CEO.  When business leaders get awards like “Entrepreneur of the Year” or "Top 40 Executives Under 40" or an invitation to the Young Presidents Organization or similar groups, they have an unfortunate tendency to believe that they single-handedly accomplished all of their company'ssuccess.  This is a sure way to alienate the team.  One suffocating ego is all it takes to destroy an otherwise successful business. 

4. You’ve fallen into the success trap.

In business today, conditions change so rapidly that what worked yesterday won't necessarily work today.  But tell that to an executive who is so enamored of his own past performance that he can't see how the world has changed.  For example, fifteen years ago, technical service companies could make handsome earnings by augmenting staffs and building custom business applications for clients.  Today, however, those firms make a third of what they once did on the same deals with business going to places like RentACoder.  Serving your customers and staff, however, never goes out ofstyle. 

5. You’ve got the "Fat and happy" syndrome.

A CEO who develops a reputation as a turnaround specialist is likely to be wooed by other struggling companies to accomplish the same magic for them.  This often leadsto the CEO "putting the band back together" - going out and rehiring the team that made the first turnaround so successful.  The problem is that a lot of those executives may well be fat and happy by now - they made their money on the first deal and no longer have the fire, the energy, or the desire to work those sixty-hour weeks all over again. Putting the band back together might work for the Eagles.  But in the business world, people often end up singing an unhappy tune.