Does my Business need an Advisory Board ?

May 11, 2011

In Australia there are 10’s of Thousands of businesses in the $5M to $250M turnover size.

Most have the same issues as the $Billion businesses, but they cannot afford to pay $250K to $1M+ per year for a specialist Advisory Board.

Issues companies need to address for sustainable success – whilst doing business:

Management Finance, Commercial & Legal
  • Business growth strategies
  • Increase in competition
  • Succession planning
  • Changes in business process
  • Leadership
  • Strategic vision
  • Compliance
  • Ageing management team
  • Divergent risk-appetite of Executives
  • Disconnect between Board and Executives
  • Maintaining margins
  • Keeping focus on bottomline
  • Fixed-price contracts
  • Minimising legal exposures
  • Risk vs Reward management
  • Capital to sustain growth
  • Cost of money
  • Return on Investment &/or Capital
  • Exposure to currency fluctuations
  • Mergers & Acquisitions
Research & Innovation Human Resources/Capital
  • Lead-time to Revenue
  • Innovation by competitors
  • Cost of innovation
  • Cost of NOT innovating
  • Value-creation opportunities
  • Service-line extensions
  • Product-line extensions
  • New entrants re-shaping a market (eg: Google)
  • When to innovate, and when to wait
  • Intellectual Property protection
  • Knowledge retention
  • Cost of Retention vs Acquisition
  • Motivation and productivity
  • Fixed vs Variable workforce
  • Total Cost of Employee
  • Skills transfer
  • Team morale
  • Poor internal communications
  • No sense of ownership/belonging by staff
  • “Bench” management
Sales & Marketing Technology
  • Qualifying opportunities
  • Increasing gross margins
  • Salesforce efficiency
  • Brand Identity
  • Brand Promise vs Service Delivery
  • Customer experience
  • Product/Service differentiation
  • Channels to market
  • Channel management
  • Market segmentation
  • Dis-integrated systems
  • Business/Technology alignment
  • Outdated technologies
  • Cost of ICT operations
  • In-house vs Outsourced
  • Poor documentation
  • Limited/No knowledge of systems in use
  • Not leveraging the full benefits of technology
  • Unable to make sense of voluminous data
  • Rising power & consumable costs

The list of challenges facing small to medium, and even large, businesses is bewildering.

The items covered above are only a small sample of the total array of issues that distract business owners and executives away from their main concern – which is making or saving money.

As it just happens, we offer an Advisory Board Bureau that provides you with access to all the expertise you need, when you need it, to help you navigate your way through incredibly complex issues that are taking up TIME YOU DON’T HAVE.

Expertise available through our Advisory Board Bureau

The following list gives you a sense of the expertise at your disposal as/when you need it.

  • Drop-in CEO, COO, CTO, CIO or CFO for a short-term engagement to turn around a company.
  • Development/Review/Validation of a Marketing Strategy or Plan.
  • Mentoring and Measurement of a Sales Team.
  • Mentoring of the CEO/CFO/COO through periods of dramatic change in the business.
  • Development/Review/Validation of a Business Growth Strategy or Plan.
  • Support the business executive team through the pains associated with actual business growth.
  • Oversight of the Acquisition or Divestment of Businesses &/or Business Units.
  • Creating, or Maintaining, High-Performing Teams within a business.
  • Dealing with staff, talent and knowledge retention (or high turnover)
  • Mediating between the Executive Team and The Board where there is a disconnect.
  • Development/Review/Validation of an ICT Strategy or Plan.
  • Oversight of the creation of a Project Management Office to handle all project activity.
  • Health-Check, or Audit, of specific projects that are concerning Management.
  • Specialist sector-specific advice relating to Product/Service innovation.
  • Expanding your sales channels.
  • Health-check of your IT Systems.
  • Benchmarking your Outsourced service providers against industry accepted performance.

So, we can deliver to your business the same quality of Advisory Boards that $Billion businesses have, but with a small business price tag.

How do we do this ?. We’ve aggregated many $5M to $200M businesses, who use our Advisory Board service as a Bureau, which means we can afford to pay for Top Talent by sharing the cost across many businesses.

What will it cost you …. Let’s talk to understand what you need, it could be as little at $5,000 per month.


Business Insurances that you need to consider as part of an Acquisition or Exit

May 5, 2011

This topic has been coming up a lot in the past month, so I’ve decided to add an entry here to stop having to “pull out the record and play it again”.

Buy/Sell Insurance for Small Businesses

There are over 2,000,000 small businesses in Australia, employing nearly 5,000,000 people.

Buy/sell insurance supported by a well-written shareholders agreement can protect the owners of these businesses and their respective estates from the impact of death, disability and critical illness.

Life insurance can be chosen as the funding medium for an owner leaving a business due to death, total and permanent disability (TPD) or critical illness.

Death (as well as terminal illness) and TPD are clearly events that lead to the departure of an owner/shareholder from a business resulting in a need to transfer his/her business interest to the continuing owner(s).

In that case, it is vital for Directors/Shareholders to enter into a written buy/sell agreement so they can set out their respective obligations regarding the transfer of their equity of the business. Plus, the choice of insurance solution for buy/sell purposes depends on the trigger events being covered.

Level of cover for buy/sell insurance

The sum insured should generally be the value of each owner’s share of the business, updated at least on an annual basis.

For example, if the business consists of two shareholders/owners with an equal share of a business valued at $1 million, the sum insured on the life of each business owner should be $500,000 for the express purpose of buying the deceased/incapacitated owners share (that is, they need the insurance to cover other things like their dependents).

The insurance trigger events should be death and TPD and possibly some well-defined types of trauma. 

Valuation of buy/sell insurance

Given that the Australian Taxation Office will most likely deem that the disposal of a business interest under a buy/sell agreement occurs at market value, it may be prudent to use current market value as the preferred valuation method.

This value would need to be updated on a regular basis (i.e. at least annually).

An alternative would be for the business principals to use a particular formula, reflecting either an industry standard or a method appropriate to that specific business. In this case, it would be prudent for the owners to recalculate the value using the formula, and then subjectively determine whether the outcome is realistic and acceptable. It is worthwhile having the business’ accountant review the valuation and confirm that it is justifiable on ordinary commercial terms, which – depending on the sums insured – may also be an underwriting requirement. 

CGT Considerations

Please talk with your accountant and/or tax lawyer about the Capital Gains implications, to get some understanding of whether CGT liabilities should be incorporated into the buy/sell cover sum insured.

Policy ownership considerations for buy/sell insurance

Certain ownership structures have tax implications depending on the type of structure chosen for buy/sell insurance cover. In any case, it is important for business owners to seek advice that is appropriate to their individual situation and objectives. Regardless of the circumstances, the implementation of a buy/sell agreement is vital. The most common types of structures are as follows:

  • Self ownership – Each business owner owns his or her policy.
  • Cross ownership – Each business owner owns an insurance policy on the life of each of the other owners.
  • Trust ownership – An independent trustee of an insurance trust (also known as a bare trust) owns the policies on behalf of the insured (indirect self-ownership).
  • Superannuation fund trustee ownership – A super fund trustee can own the policies on behalf of the insured.

Buy/sell insurance provides vital protection for small business owners against the impact of death, disability and critical illness. You should be mindful of the important areas of buy/sell cover, including the choice of risk products, the level of cover, business valuations, policy ownership structures and their tax implications.

I highly recommend one of the leading players in personal and business insurance – Risk & Business Consulting (www.riskandbusiness.com.au) – to guide you through the specifics of what you need for this complex but vital area of protecting your business interests.


Revisiting the Topic of “Is 2011 the year of M&A, IPO or the return of Private Equity ?”

February 28, 2011

In 2010, I kept getting asked about this – it seemed to be the topic de jeur in many of the meetings I was in during H1 of 2010.

Check here for a link to the 2010 blog entry I wrote.

As I said last year, everybody has their reasons why they might favour one dominant approach (M&A versus IPO versus PE Funds) over the others, and ultimately that’s what it tends to be … people pushing their own wheelbarrow on the coat-tails of one of these types of trends.

Irrespective of which one ultimately dominates during 2011, there are some things we can definitely observe and therefore make some educated guesses about:

  • Mergers & Acquisitions will continue to be very busy during 2011, continuing what happened in 2010 with industry consolidations and tactical acquisitions.
  • The number of attempted IPO’s in 2010 was only a small % of the successful ones. In 2011 this % will be much higher, and also be based on a much higher number of attempts.
  • Private Equity got a bit of a run-on during 2010, but is still being brought unstuck by having to hold onto the trading operations for much longer than they used to.

Now, whilst those observations are very much SFW, there are some specifics to consider.

M&A.

  • M&A activity will actually be stronger again in 2011 than in 2010, last year it was about businesses leveraging their balance sheets again. In 2011 it is all about growth by acquisition.
  • Businesses were being picked up at 3 x EBIT early in 2010 it got better through the year – but didn’t get to the 6 x EBIT I thought it would. However, roll-ups have intrinsically greater value than a tactical acquisition and this is being borne out by some of the multiples being achieved.
  • At the larger end of town hiring of staff has become very tight, in the SME space it isn’t as tight but this is because they’re being less picky. As always, acquisition is an easier way to get the right people (then you just have to find a way to keep them !!).

IPO’s.

  • Public interest/appetite in solid businesses looking to list has continued to increase, and will do so throughout 2011.
  • Trading conditions are still very fragile in some sectors, so whilst IPO’s are a viable option again, there is definitely enough downside risk to require caution.
  • There are some heavy duty businesses looking to list, an example is the iSelect business in Australia which I gather is looking to IPO and list towards the end of 2011.

PE Funds.

  • The Facewash/Strip/Sell strategies are still not viable because of the EBIT multiples available.
  • PE Funds have had to hold and run businesses for the last 2-3 years, previously they’d have been out in 12 mths.
  • The PE Funds have now got a totally different skillset/timeframe/approach courtesy of the GFC.
  • Providing that trading conditions improve there will be a number of PE Funds looking to offload businesses during 2011, as they seek to reset their investment strategies for the growth times ahead.

Given all of the above, it will be a very active and interesting year for Corporate Advisory firms (like ours) and for those businesses out there that have a good story to tell.

Feel free to contact me if you want to explore this topic in greater detail.


Top Qualities that the Best Leaders Show

February 22, 2011

This is just a quick posting, on a topic I get asked about often enough to warrant it’s own entry.

What are the qualities/factors that the best Leaders have ?.

Top leaders…

1. Visionary: They have a very clear understanding of where the organisation is going and a clear strategy for getting there.

2. Communicate Well: Great leaders ensure that their message gets across to all in the organisation – clearly.

3. ‘People’ People: Top performing leaders build great relationships, and also develop excellent team spirit.

4. Delegate: Great leaders do just that – Lead. They let their people get on with the doing – and encourage them to do it well, and enjoy it.

5. Know Their Business: Not only visionary, they’re strategically sound. Top leaders truly understand their business inside and out, good and bad, and firmly move it on – they make the difference.

6. Are Role-Models: They lead from the front, and have the values of the organisation and their people. They say it , and also do it.

7. Build Rapport Quickly: Excellent leaders have a way of building rapport instantly, through what they say, how they look and especially how well they listen and value people they’re with.

8. Charisma: They quickly create rapport; they communicate well … and there’s something else – they have a personal style which ooozes that extra something … great charisma!

9. Very Determined: Whilst having great people skills, truly great leaders go that extra mile – they are follow-through to achieve their goals and vision. They’re totally ruthless, but in a people-friendly way.

10. Passionate: Great leaders bring immense energy to every task – no matter how big or small – because the Leader knows they all contribute to the business goals and vision.

So, where do you find Leaders ?

They can be found anywhere and everywhere – not just as CEO’s, Directors or Supervisors.

The key to discovering Leadership talent is in finding the people with passion and helping them to express themselves in ways – through support, training and learning – that bring out their best and deliver all the extra benefits to a business that leaders naturally bring.


Leadership, Should I Decide with My Head or My Gut?

February 22, 2011

Many years ago, when I was younger and less experienced in business management, I was chatting with the MD of the company I worked for.

We were discussing risk management, as I’m a PMP certified Project/Program Manager and have been for over a decade.

We talked about Risk Management frameworks, and for him it all boiled down to his “gut” in terms of whether the risk seemed acceptable or not.

Now don’t get me wrong, he didn’t just make all decisions based on his “gut” – but it certainly did drive him in terms of requiring more/less validation before making the final decision.

At the time I thought, there must be a better way than just “gut” for determining this sort of thing.

Now, years later, I tend to agree with him. Your gut-reaction to a decision definitely gives you a sense of comfort or foreboding about a decision and its consequences.

So, this leads to the topic of Leadership and the soft-skills associated with being a good leader. Read on for further details.

What is Intuition ?

In simple terms, intuition is when we know something or know what to do without necessarily knowing why.

What to do just comes to us in a flash of insight. Some intuition is instinctive. For instance, if someone starts running after you with an axe, you will most likely have the instinctive (and intuitive) response of either defending yourself or running away. Moreover, your reaction would be entirely rational.

Other intuition is the result of years of training and knowledge building. Police officers, firefighters, military commanders, emergency medical care providers, airline pilots and many others spend years in learning and honing their skills in order to react in an instant with the optimal solution.

Intuition …. So What ?

Our society expects specialists like those I’ve covered above to make high quality intuitive decisions quickly and accurately and then execute them effectively.

A surgeon with many years’ experience in the operating room has much better intuition than a newly-graduated doctor. The same goes for a highly experienced fireman.

In his bestseller Blink, Malcolm Gladwell describes how a veteran firefighter was able to “sense” a change in situation and order all of his crew out of a house just before it collapsed. He was unable to identify the steps in his decision; he just “knew” that it was time to get out.

The same goes for experienced leaders and executives in all walks of life. With many years of life experience, they can just tell if someone “has it” or doesn’t, and no amount of rational deliberation with convince them otherwise.

However, not all intuitive decisions are equal; and in fact some are wrong – or very wrong.

Experience, and in particular depth of experience, is a reliable indicator for a “good” outcome. Conversely, some situations are so novel, that intuition is next to useless and can even be counterproductive. In that case, deliberate decision making is needed in order to think through the factors impinging on the decision and to ensure that a variety of courses of action are considered.

The key here for a business leader is to consciously know whether they have direct or empirical evidence of an intuitive recommendation being “good”. If the answer is YES – follow your intuition; if the answer is NO – you will to take a more deliberate (and deliberative) and therefore rational approach.

Intuition versus Deliberation

As a guide, the following situations lend themselves to intuitive responses because of immediacy:

  • During an emergency, that requires an immediate response in order to save lives;
  • When there are direct threats to physical safety;
  • When a team has gotten lazy or overly reactive in the face of risk, and requires inspirational leadership to fix the situation.

There are situations where both Intuition and Deliberation are suited:

  • When you’ve been made an offer for the sale of your business;
  • When you’re considering “dropping” an existing client;
  • When you need to take action to correct the behaviour of a team/staff member;
  • When you’re considering a merger with another business;
  • When you’re considering taking on another business partner;
  • When you’re considering Product/Service extensions to your business.

Most other situations have enough time built in to them to allow at least some level of deliberation. It is prudent to involve outside experts and to form an advisory team when faced with unusual situations that will require imagination and resolve to turn around.

Finally, intuition does play a role in deliberate decision making because of its ability to generate deeper insights and provide innovative solutions.


Some thoughts to guide future business investments

January 27, 2011

My apologies for being absent from the blog posting world for many months – it has been a busy time, and H2 of 2010 was particularly busy for my business.

Because I get asked for advice on all sorts of topics, I’ve decided to put some pointers/tips/hints/advice all in the one easy to find place.


Some great quotes to consider, when creating the vision of your next business venture:

1. Revenue is vanity, Profit is sanity.

2. Your business idea …. If It Doesn’t Spread, It’s Dead.

3. Businesses take note …. The youth of today don’t wake up thinking about your brand.  Stop trying to buy their attention, because nowadays you have to earn it.

In a future blog posting during H1 of 2011, I will explore each of the 3 points above in more detail.


Some great links to check out, to help formulate the details about what your next business venture will be:

1. http://anthillonline.com/5-reasons-your-problems-arent-being-solved-and-5-ways-to-solve-them/

2. Bessemer Venture Partners acknowledged some of their big “misses” from the past  http://www.bvp.com/Portfolio/AntiPortfolio.aspx

3. 100 Best Small Business Podcasts  http://www.smbtrendwire.com/2010/03/01/100-best-small-business-podcasts-2010/

Some interesting technology statistics from the end of 2010 that your next business venture should be looking to exploit:

  • In the US today (2010), text messages outnumber phone calls
  • Globally, 95% of all text messages are read within 15 Minutes
  • Over 20% of people respond to a text message
  • Globally, twice as many people use text messaging as use email
  • Over 2 billion people have mobile internet access
  • 1.8 billion people will send at least 1 text message today

Some “scary” societal/economic statistics from the end of 2010 that represent some of the imbalances we should be trying to address:

  • China has 140 cities with 1+ Million residents, the whole of Europe has 35 !!!
  • The US is 4% of the total world population, but each year consumes 60% of the worlds total savings !!!
  • In Europe in 2010, there are 4 workers per retiree.  In Europe in 2050, there will be 2 workers per retiree !!!
  • In China, in 2050, there will be 450 Million people aged 60+; there will also be 100 Million people aged 80+.
  • In the US today (2010), 40% of all adults aged 50-65 are already experiencing difficulty with basic activities like walking, and climbing steps.
  • In the US today (2010) 1% of Americans received 25% of ALL personal income, this is also more than the bottom 50% of households put together.

Feel free to contact us, if you want more information, or want to discuss how your business might be able to take account of these trends to create a better business plan and a more sustainable business for the future.


The Second Biggest Issue Facing Your Business

July 16, 2010

It is commonly agreed that business cashflow, and the maintaining/growing of it, is the biggest issue your business will face day-after-day and year-on-year.  The challenges associated with sustainable growth and customer retention should not be underestimated no matter how successful you’ve been and for how long you’ve been in business.

Second to business cashflow as the issue which causes more heartache and business failures (or businesses to severely underperform) is success planning.

What sorts of businesses have succession planning issues:

  • Businesses that have been operating for more than 5 years;
  • Businesses where the principals/executives are over 45 years old;
  • Businesses that have high staff turnover in the next generation of future leaders;
  • Businesses where there are no logical successors within the business today;
  • Family businesses where the Sons/Daughters are not interested in being part of it;
  • Businesses where the founders/principals have been part of it for more than 15 years;
  • Small to midsize Legal/Accounting/Medical/Dental practices (from 5 to 20 practitioners) where the major participants do not intend to be there in 5 years; and
  • Businesses where the principals/executives are starting to suddenly encounter the health issues that come with middle age.

In other words, well over 50% of all businesses out there today.

What is Succession Planning?

Succession planning is a process of determining critical roles within the company, identifying and assessing possible successors, and providing them with the appropriate skills and experience for both present and future opportunities.

In other words succession planning covers these important, and often poorly executed, steps:

  • Staffing and Recruitment … You Recruit and Retain superior employees who are right for the business
  • Learning and development … You provide employees with the tools, methods and experiences to develop their knowledge, skills and abilities
  • Leadership … You provide employees with the techniques and practical experience to genuinely – and naturally – be the future leaders of your business
  • Annointment … You make sure that – when the time is right – everybody in the business knows who has been selected to spearhead the succession.  If things change suddenly you do not want your plans to fail do to opportunistic “coups” that take place in the vacuum caused by the sudden changes
  • Performance and Compensation management … You prepare employees for advancement and/or promotion into ever more challenging roles
  • Talent Management … Even though you’ve identified the future leaders, some times you need to replace these superior employees for the long-term future of the business.

Why Do I Need a Succession Plan?

Succession planning is a process by which the successors (future key employees/leaders) are identified for key roles throughout an organisation including vital roles in each department of the business.

Because it (should) take into account the strategic vision and objectives of the business, it means a business with a good succession plan in place, will perform no worse and often much better as a result of the changes caused by the succession.

This is because both employees and customers are ready for the changes when they occur in terms of appropriate skills and experience to have no/minimal impact to business operations (and profitability).

Conversely, businesses without a succession plan in place will inevitably stumble when events occur – such as a sudden death or departure of key executives.  These stumbles manifest as a drop in revenue, earnings and often customers who are dissatisfied with the performance of what was previously a good business relationship.

In fact, many businesses who have not prepared succession plans actually go out of business as a result of the events that triggered the need for that succession plan.

What is in a Succession Plan?

Typical activities covered by a succession plan include:

  • Identify, Define and Articulate the roles and skills which are critical for future company growth
  • Analyse and address each of the gaps (processes & people) revealed by this planning process
  • Identify and Specify the developmental needs of all employees to fill tho key roles
  • Ensure that all key employees understand their career paths and the roles they are being developed to fill
  • Create the learning environment that trains people for skills and positions that may not currently exist in the company
  • Recognise that the employee’s time needed for training/learning as part of the succession plan may mean their current roles need to be backfilled for some time and that this is a cost of securing the future of the business
  • Allow the succession plans to evolve with the business through regular executive discussion of people and roles
  • Identify the top performers in all departments and work openly with them to ensure they are engaged and satisfied to stay with you for a long period
  • Continually manage and monitor the succession processes, and whether planned development for individual employees has taken place AND delivered anticipated/acceptable outcomes

Feel free to contact us, if you want more information, or want to commence a succession plan for your business.