Reflections

Selling your business one day will absolutely be affected by your company culture

In prior blogs, we’ve referenced that your future company acquirer will be placing a big bet on the jockey (your team) even more than the horse (your products/services). Your future company acquirer will be drawn to your company because of the market you serve, your company financial performance and certainly it’ future growth potential. But in evaluating these things, they will also determine if they believe your team (the jockey) has the experience and the culture to enable the future. Confidence in your team and culture will build the worth of your company in their eyes. Concerns about your team and culture readiness to enable growth will very much impact the valuation the acquirer places on your business.

We often find in working with new clients that certainly their business strategy can benefit from some enhancement. But more often their team and culture are what need the greatest degree of attention. A good strategy is great but unless you have a great team and culture to implement it, that strategy will most likely take you nowhere.

To help you think about the strength of your jockey (team and culture), here are questions to consider:

• Are there key people on your team that have the experience to take your team to another level….or do you have key people that have helped you get where your company is today but don’t bring the experience or capabilities to get the company where it needs to go next?
• Would an acquirer look at your leadership team and see people with good backgrounds and pedigrees (education levels, job experience) that fit very well the job they are doing? Or would they see people that really haven’t been well prepared for what they are doing which means they may inhibit the company in the future?
• Does your company track employee attrition by department and is the attrition within industry norms? Too high an attrition could be a red flag for an acquirer that something is amiss with your culture…and quite frankly an attrition that is too low could also raise a question or two.
• Do you and your key managers hold people equally accountable for their performance across the board….or do some department leads hold their people to one level of accountability while others do not? Your star employees will see this and they won’t look to shine any more…and your underperformers will see this and know it’s ok because the company really doesn’t address this across the organization.
• When the future acquirer looks at your performance through the lens of your financials and KPI’s, will they see a good history of hitting set targets? This is often the first place an acquirer will look during due diligence – teams that regularly hit set targets can be a positive indicator of a good culture.
• Do you regularly develop and promote from within your business in filling open supervisory or managerial level jobs? Companies with good cultures are more often than not promoting from within, certainly not on all needs but on many.
• Are your employees, especially key ones, informed of your company direction and annual strategic initiatives and know how their jobs are connected to supporting company direction? Companies with good cultures have employees connected to the strategic direction of the company in some meaningful way.
• Does your strategic thinking and planning include soliciting input from employees – soliciting input from a broad range of stakeholders, including employees, is often a sign of a good culture.

There are many more questions to consider when evaluating your team and culture. Too often company owners/CEO’s believe the future acquirer will focus only on company financial results in setting their purchase price offer. This is a myth. Yes, financials will be important but equally so will be your team and culture. Use time as a friend to ensure you’re building and leading a team and culture that will help you one day achieve your euphoric exit event.

Preparing a company for exit requires more than company readiness

In kicking off a new year, most owners are rightfully giving thought to their business and what they want to achieve to build company worth. Too often forgotten is the readiness of the owner(s).

Here are great questions to ask yourself now, using time as a friend to ensure that you (co-owners) are  ready for a potential exit one day:

• Am I truly going to want to disconnect from my company one day? Often times, owners talk a good game about selling one day, but because they are so connected to their baby and they don’t envision doing anything else, they actually don’t prepare well for an exit because deep down they fear it versus embrace it.
• When company sale time comes, do I know what I want to do next with my life – my calendar today is full with events and meetings related to my business. Am I thinking clearly about what I want my calendar to look like the minute these meetings and events disappear?
• Am I aligned with my spouse/partner/family in terms of what post company ownership life looks like? Too often an owner sells, starts changing their routine and assumes their family is ready to change their routines as well…most often this is a bad assumption. Talk now with family members around what a company sale might mean to them given how it’s going to change your life/routine.
• Is your family clear as to your wishes for the company should you become incapacitated and not able to lead your team prior to an organized exit event? We all want to assume that exiting from our company one day means going out via a euphoric sale to a third party. But have you documented your wishes and plans for the business should something occur prior to selling that forces your family to step in and figure out what to do with your company? An owners sudden and unexpected inability to continue leading their business is not only stressful to a spouse/partner/family on one level but it then becomes enormously stressful for them to determine what to do with the business because you didn’t leave any plans for how to handle such an unexpected, but potential, event. In these situations, the stressor also then translates to your employees because they learn of the sudden uncertainty with the company and their employment.
• Is your financial plan being put in place to help you ensure that you will make enough net proceeds from selling your company one day to pay off any business debts (acquirer’s won’t assume them) and have you built your plan for what cash flows you’ll need and want once the company is no longer paying you or distributing funds to you? Owners can get comfortable over the years paying themselves a good salary and taking distributions as they need to cover life expenses. Once that pipeline is gone, is your plan set as to where those funds will come from?
• Have you thought through the gross amount you will want to receive one day from a third party for your business and what net amount that will actually deliver to you? Conducting a Gross to Net Proceeds Payout Analysis should be done well in advance of attempting to sell. Many owners are often unpleasantly surprised when they see what the Net payout is from a Gross amount that sounded attractive to them.

Start this new year by stepping back and asking key questions like these. The longer you wait, kicking the can down the road on these questions, the more stressful your life and the life of those around you will become when you’re actually faced with having to address them.

Ensure having the right focus to prepare for successfully selling your company one day

People talk about New Year’s resolutions this time of year which for company owners and CEO’s, should include thinking about the focus for the year ahead for building their company net worth.

Whether by yourself or with key advisors or executives on your team, here are questions every private company owner/CEO should be giving strong consideration to:

• Did my team build company net worth (enterprise value) in the just finished year – is my company worth more today than it was worth a year ago? Where did we do well in this area and where did we not so we can address this in the new year?
• Am I clear on what will drive up the net worth of my business in this new year? Strengthening our financial performance is certainly a key element but how about steps we are taking to make our company stickier with customers, increasing the predictability of revenues, improving the productivity of your organization to enhance margins, strengthening the culture of our team, etc, etc.
• Am I clear on what a future acquirer will expect to see when the day comes they kick our tires – am I building a business that will excite them when they start looking closely at it?
• Have I identified with my team our top 3 to 5 strategic areas of focus for this new year? And do these areas bridge to helping us build long term company net worth?
• What is my business worth today (to an acquirer) and is there a gap to what I’d like to receive one day when I decide to sell?
• If there is a gap between what my business is approximately valued at today and what I’d like to one day sell it for, what are the top issues causing this gap? And do my strategic initiatives for this new year help me address these gaps?
• Do I have the right people in the right roles with the right focus for helping me build company net worth?
• Do I have the right incentive plan in place for key managers on my team to ensure they have the right focus in this new year for helping to build company net worth?

These are just some of the questions we help clients think through on a regular basis. Step outside of the daily tactical aspect of leading your team and ask these questions to ensure you’re not confusing motion for actually making progress. We always say that owners/CEOs should use time as their friend in preparing their company for a future exit event that will make them euphoric. Addressing these questions will have you thinking and talking about the right areas that will help you one day achieve your personal euphoric outcome.

To achieve your euphoric exit, make sure you are monitoring your industry M&A activity

When a surfer arrives at the beach, they don’t just gear up and head into the water. They first observe the conditions, or the environment they are considering surfing in. When it comes to preparing yourself and your business for a future euphoric exit event, you’ll want to take the same approach.

Here are some good questions to regularly ask yourself and build the environmental awareness you’ll want for a great future exit event:

• Are companies being acquired in my industry or does it appear that companies are selling to exit the industry?
  • If they are exiting, try to reach some of the Sellers and inquire what dynamic they were experiencing that led them to the conclusion that exiting was in their best interest.
  • If companies are being acquired in your industry, who is doing the buying? Are they Strategic players already in the space that want to expand their penetration and/or financial sponsors (such as Private Equity) wanting to enter the industry you’re in?
• For those acquiring in your industry, what do they find attractive about it? For companies that are doing the acquiring, leverage your network to help you answer the question of why they are expanding/entering your market sector and is it due to dynamics you are or aren’t aware of yourself?
• For companies acquiring, what criteria are they using in making their acquisition decisions? Are they looking to buy scale, specific products/services, capacity, intellectual property, people/talent, geographic expansion, etc.? Knowing this can help you identify what steps you may need to take to address any gaps in the areas you’ve learned acquirers are placing value on.
• Based on the criteria that acquirers are using, how does your company fit those criteria? Are you strong in each of the areas they desire, or do you have any gaps that you’ll want to address before you attempt selling one day?
• Is there an optimal timing window that you should consider selling your company? If acquirers are active in your industry, should you consider an exit sooner as waiting too long might have you miss the window of when premium valuations are being paid for businesses like yours.
• Do you know what the range is for the exit multiples that acquirers are paying for companies in your industry? Leverage your network to find out what the range is and what types of companies are commanding the upper range of the exit multiple so you can be aware of where you’ll need to build your business to also command the premium one day.

In working with our clients, we help them better understand the environment that they are operating in. Having this awareness can be instrumental in helping to build company net worth and in building the awareness that could help you achieve your future euphoric exit event.

There are 3 critical areas you will want to have aligned

Many times, we’ll hear company owners/CEOs comment that they will sell their business only when they are personally ready to do so. On the surface this makes sense. But, to command a premium valuation for your company there is another critical factor and that is what appetite acquirers have at the time for a business like yours.

To achieve one day receiving the highest possible valuation for your company, you’ll want to monitor the alignment of 3 areas – 1.) Your Company Readiness To Attract/Excite Acquirers. 2.) Your Personal Readiness To Sell Your Business. 3.) Acquirers Appetite For A Business Like Yours.

The first two are clearly within your control and the third is not. But key to your exit preparation is monitoring the marketplace you are serving and knowing what the level of acquirer interest is. Our recommendation to owners/CEOs is to build a company that is ready to exit so that when either you wake up one morning and decide you’re personally ready to sell and/or strong potential acquirers come knocking on your door with the desire and available funds to buy a business like yours, you want to be able to jump on this.

What you want to avoid is only waiting for when you’re personally ready to sell only to then realize your business isn’t fully ready to excite an acquirer to pay a premium valuation and/or acquirers don’t have high interest in your market or your products/services at the time. To align these critically important 3 areas, engage with an exit planning professional like Yosemite Associates who can help you think about the alignment of these 3 areas and get you on your path to one day achieve a euphoric exit event.

Improving your budgeting muscle begins with setting assumptions

In prior blog posts, we’ve identified the various muscles you’ll want your company to have in place to help excite a future acquirer to pay a premium when they acquire your company. These muscles include strategic planning and execution, financials and cash flow management, KPI management and another is developing and managing your company financial budgeting.

We speak with many owners/CEO’s and too frequently help them identify that their financial budgeting is sorely lacking effectiveness. The issue at too many businesses is budgeting is more of a math exercise than a true strategic planning activity.  Too often the budgeting is set by the controller or CFO with little connection to the actual strategic plan of the business. Here is a listing of questions and discussion items to have with your team to strengthen your company budgeting muscle:

• Have we identified our top 3-5 business strategies for the new year and have we aligned these to our new year budget?
  • What will the strategies impact be on revenue
  • What will the strategies impact be on our cost structure
• In our revenue plan for the new year, have we identified changes we are anticipating or planning for that might change the mix of business we believe we will get? Revenue mix changes from particular customers and/or particular products or services could impact the gross margin which should be captured in your budgeting.
• Have we discussed as a team what budget assumptions we should be making for the new year?
• • Revenue assumptions (see blog post of November 9, “Revenue Walk For The New Year”)
  • Labor assumptions - what are we assuming will happen with our headcount and our wage changes for direct and indirect labor.
  • Material cost assumptions – what are we assuming is going to happen to the costs that we incur to make or fulfill our product or service.
  • Employee benefits assumptions – what is the assumption related to what will happen to the costs related to benefits such as healthcare, vacation days, etc.
  • Business insurance assumptions – are we assuming increases or decreases related to business insurances, workers compensation, etc.
  • Facility cost assumptions – what are we planning will occur related to the cost of our facility and equipment and related utilities.
  • Capital expenditure assumptions – what plant, equipment, computers, systems, etc might we need to enable our strategy that we need to build into our budget.

Showing your future acquirer that your team has a good planning muscle and this leads to having a good budgeting muscle will give them the confidence that they won’t have to introduce these critical disciplines to your company. Use the approaching new year as the opportunity to begin strengthening your budget management so you check a key box for your future acquirer to excite them about the planning muscles you’ve established and that they can continue to benefit from.

Looking to grow your business, let's look at the quantity and quality of your leads

When the day arrives that you want to sell your business, the acquirer will place a meaningful portion of their purchase price on the future potential they believe your company has. During due diligence, you’ll want to be able to prove to them that your company is rich with both quantity and quality of leads and that your team also has an excellent discipline for managing them.

To enhance the leads your company generates and the management of them, here are some great questions to sit with your sales & marketing team to discuss:

• Do we track quantity of leads we get as well as the quality of them? You don’t want to confuse quantity of leads coming into your business with quality…quality means they are truly leads from your target customers.
• Do we track quality of leads in terms of how many we receive that are for our target customer versus leads from customers that don’t fit our target?
• Do we have an effective tracking of our win/loss rate related to the leads? And do we track our win/loss rate for new customers versus repeat customers as the repeat win rate should be much higher?
• Do we effectively triage leads when they first come in so we apply the appropriate focus on the larger more strategic opportunities?
• Do we track our leads through the various stages and do we have metrics telling us what the conversion rate is at each? Leads start as Suspects, then move to Contacts, then move to Prospects and then move to Customers. Do we track our leads through these various stages to know when the majority drop out?
• Are we tracking only the leads that we have outstanding proposals/quotes for or are we also keeping tracking of target markets/customers we don’t yet do business with but one day we want to? In other words, your sales opportunity pipeline should not just include the leads your sales team is working on but it should also include markets/target customers you could work one day when you have the resources to do so.
• How effectively and timely are we following up on leads – do we know each day/week how many leads came in that we still haven’t gotten around to following up on?
• Which of our lead sources (internet advertising, networking, cold calling, magazine/tv, etc.) if generating the highest quality of leads?

We often hear new clients talk about needing more leads to support their sales targets. After detailed discussion and analysis we often find the real problem isn’t the quantity but it’s the quality of the leads (meaning leads are coming but not from the target customer) and/or the company has a poor lead management system and process which means the company is paying to get leads but not managing them well.

Give your future yourself a gift today by evaluating the quantity and quality of leads your company is generating and how effectively your company is managing them. Making improvements could enable your sales and help excite a future acquirer in seeing this discipline embedded in your business.

Selecting your M&A attorney is a critical exit preparation step

Most business attorneys can handle the legal document preparation needed to transact the sale of your business to a third party. But only very seasoned ones will keep you from getting sued post-transaction.

Selecting your legal partner for your transaction is not something you do once you’re already entertaining early dialog with potential acquirer’s. A year prior to even thinking about selling your business, you’ll want to interview seasoned mergers & acquisitions (M&A) attorneys to see which is the right one to join your team. This person/firm will represent you in all legal matters related to the transaction and will ensure that legal documents are negotiated to protect in getting the best deal possible and protect you from lawsuits that can commonly arise after you’ve sold your company.

And avoid a common mistake that many owners of smaller privately owned companies make. They turn to their long-time trusted family or business attorney. We aren’t saying never do this, but we are saying think long and hard about how seasoned they are in the specialty field of negotiating legal documents for a company sale. Your acquirer will very likely have a very experienced M&A attorney representing them, so you don’t want to have your generalist up against their specialist.

Don’t leave selecting your M&A legal partner to the last minute. Contact us and we can provide you with the questions to interview lawyers and we can even recommend some that we’ve worked with on smaller deals and very larger ones. Don’t prepare for a euphoric exit event only to find you selected the wrong legal partner to get you over the finish line and protect you years after the transaction was completed.

Add this topic to your strategic planning discussions to build company worth

When thinking about your future euphoric exit event, one of the many areas an acquirer will evaluate your company for during their due diligence is what impact an evolving technology could have on your business. If they believe your company is ill prepared for an evolving new technology and could be disrupted by it, the valuation they place on your business will be negatively impacted. It will be impacted because they will see this as risk that they might have to address in buying your business. But if they see you are already leveraging a new technology to be the disrupter or have the potential to do so, your valuation could increase greatly.

Sit with your team and discuss these questions:

• What are the evolving technologies coming at our industry that could change products, services, customer experience or a general business model that we or a competitor has?
• Could an existing or new competitor leverage an evolving technology to change their product, service or business model and that change could give them an advantage over us, thereby disrupting us?
• Could an evolving technology be used by us to bring disruption to our market so we get a strong competitive advantage?
• Do we see any competitors beginning to leverage new technologies and if yes, what could that mean to us as we compete against them?
• Can we talk with select customers and even target suppliers to get their view on what evolving technologies they see coming into our industry?

Don’t let a new technology and how it’s being used in your industry be the reason a future acquirer reduces what they want to pay for your business. Add this topic to your strategic planning…could we be disrupted and could we play the role of a disrupter and in so doing, build the longer-term net worth of our company.

Another planning muscle a future acquirer would like to see you have

When you look one day to sell your company, the acquirer will do their due diligence and among the many things they will be looking for is what types of basic business planning disciplines your team possesses. These basic disciplines include developing a strategic plan for your company as well as building an effective accompanying budget. Lacking these basic disciplines won’t turn them away from wanting to acquire your business but it could make them look even deeper during their due diligence to what basic disciplines they think you’re company is lacking and they then will have to build.

Specific to building an effective annual operating budget, here are some basic considerations to keep in mind:

• Don’t do your budgeting and strategic plan updating in parallel. Budgeting places constraints on your strategic thinking. Do your strategic thinking and planning and then do a proforma financial projection – if the proforma pencils out well then you move it to a budget. If not, then you go back to your thinking and planning to develop a plan to help you achieve your desired financial goals.
• In building a new year budget, evaluate what you got right and wrong about the assumptions that you built into the past year’s budget. You want to learn what you got right and repeat it and learn what you got wrong and see what you can do to not repeat the same mistake in building the new year budget.
• After assessing what you got right and wrong about your prior year budget, you then work on setting your assumptions for the new year. The senior leadership team should meet and discuss the assumptions that will then be used to build the budget. Here are assumptions to discuss and document as you build them into your budget:
  • What is the revenue target we’re setting for the new year – see the November 9^th blog posting regarding building your revenue walk
  • Raw Materials expense – are you expecting an increase, decrease or will it be flat
  • Direct Labor expense – increase, decrease or flat to the current year
  • Insurance expense – assumptions related to business insurance, employee health insurance and workers compensation insurance
  • Utilities – if your business is a large power/water/gas consumer, what increase/decrease assumptions are you making for the new year
  • General Labor – what wage increase assumption will you implement in the new year
  • Headcount – what increase or decrease will occur in your general workforce – are you planning to add new roles to the company and associated compensation and benefits expense or will it be the same as current year or will it be less
  • Travel & Entertainment – this can be a large expense in bigger organizations with a large sales and marketing team – what expense assumption are you planning
• Each month in the new year, compare your actual financial results to your new budget and to prior year actual. Discuss with your team variances and reasons behind them so you can continue to learn and apply the learnings to your future planning and budgeting.

Benefit today from having a stronger financial budgeting muscle at your company and be rewarded at time of your future company sale by building acquirer confidence. Talk to your CPA and your financial team to brainstorm improvements to be made in your budgeting heading into the new year.

Knowing which you are is important for a future successful company sale

We see three types of company owners – all are smart, all are driven to succeed but not all 3 will command a premium valuation for their business when the day comes they hope to sell to a third party.

Ask yourself, which of these 3 types of owner/CEO describes you:

• Owner/CEO that thinks tactically, isn’t asking the right strategic questions about their industry and business.
• Owner/CEO that is a strategic thinker, identifying questions they should answer about their business but don’t – they know they are kicking the can down the road on getting answers to strategic questions and executing on potentially tough decisions.
• Owner/CEO that thinks strategically, asks the right strategic questions about their industry and company and searches for the answers and makes the tough execution decisions.

We see a big difference at time of company sale in the premium valuation that owner #3 above commands for their business versus the other two. Conduct an honest self-assessment about which of these types of leaders you are. It’s not just important for you but it’s important for your family, investors (if you have any) and even your employees because you want them to have a good workplace to continue when the day comes you exit. Give us a call as we have templates you can use to help you think more about this and help to move you to being the strong strategic thinker and strong leader of your team for solid implementation.

When you sell your business one day, show the acquirer that you've built an important business planning muscle

Too often company owners and CEO’s plan their upcoming new year revenue only at the level of setting an overarching percentage of growth or a specific dollar target. Unfortunately, this target is often void of any real logic underpinning it other than where last year finished or gut feeling.

Build the muscle at your company of developing a sales target that is based on some logic. Here are the questions to discuss with your team that will have you “walking” your revenue from where it will end this year and what it will walk to for the new year:

• What do we think our served market will do next year in terms of growth – will our served market (and each sub-sector) grow, shrink or be flat and what will this mean to our growth?
• What changes are we planning to make with our prices for the new year – when will we implement a price change and what yield might this provide next year and what impact will this have on revenue?
• Are we expecting any changes in our customer base for the new year – any customers planning to reduce their purchases from us? Or customers that have been acquired or merged with another company and what will that result mean for our revenue in the new year?
• What do we expect our existing customers to purchase from us in the new year? Do we expect any mix changes to what they purchase from us?
• What are we factoring in to our revenue number for the new year specific to adding new customers?
• Are there any new products or services that we are planning to add to our portfolio and what revenue do we expect from this? Will adding a new product or service cannibalize anything we already sell? Might there be any products or services we are planning to cancel from our portfolio and what revenue (and margin) impact will that have?
• What are we planning for our sales team for next year – will we get incremental revenue as a result of adding new sales resources or will we lose any sales resources and what revenue impact might that have?

As you think about each of these questions and the revenue impact, you’ll then have the “walk” of your logic in terms of where one year will finish and where the next year is targeted to end. It will also help you think through the associated gross margin impact from each revenue line item which will go a long way in helping you plan your profit target for the new year as well.

With this degree of detailed thinking, you’ll be better able to set bonus programs for employees and sales targets for your sales team. Overall, this is a planning muscle you’ll want to build over time so when the day comes you want to sell to a third party, they will be impressed that you have this planning ability and it may cause them to have greater confidence in your sales projections which will be an important part of their consideration for placing a value on your business.

EVERYTHING

Many times, when a seller looks to sell their company to a third party, they naturally think about negotiating the deal. But too often the definition of negotiating begins and ends with the purchase price, or valuation the acquirer places on your company.

But in reality the sale price or valuation is just the starting point for what you can negotiate to move you toward your euphoric outcome. Here are other negotiable items that can make a meaningful difference to what you’re receiving for your business.

• Structure of the transaction. Negotiate for a Stock transaction as these are often more favorable to the seller due to tax benefits versus an Asset transaction.
• Working capital adjustment – these are a common negotiated item during a transaction and can be meaningful to the net proceeds the seller receives.
• Holdbacks – this is a common negotiated item and will impact the timing and the potential dollar amount the seller receives.
• Percentage of cash at close versus payments over time – the timing of receiving payment for the business may impact the seller tax payments and the time value of money.
• Owner salary amount to stay on board or to work through a transition period. Include negotiating a bonus during the same period.
• Continuation of health benefits for the seller and family.
• Continuation of desired perks that the seller has enjoyed historically.
• Continued use or access to the company products and services if desired by the seller.

This gives you a flavor of deal points that are open for negotiation in most transactions. Thinking beyond just the overall dollar valuation amount can have you increasing the total reward you’re receiving for all your years of hard work.

Preparing for your future company sale begins with having the right plan

What can businesses learn from the military as it relates to strategic planning? It’s that strategic planning is the military mantra of having situational awareness and operational effectiveness.

Ask yourself these questions:

• Do we have great situational awareness of what is going on inside our four walls?
• Do we have great situational awareness of what is going on outside our four walls?
• Based on this situational awareness, do we have a good plan for operating effectively?

Executives often don’t tackle strategic planning because they don’t know how to…so they put it off. Or they try to tackle it but over-complicate it. Here is an effective broad approach to tackling your company strategic plan:

• 1. Situational Awareness – Assess inside the four walls of your company
  • What is our historical financial performance
  • Where are we strong in the market, where do we have challenges
  • What value does our customer derive in working with us
  • How do we serve our customers uniquely versus the competition
  • Where is our team/organization strong and where do we have challenges
• 2. Situational Awareness – Assess outside the four walls of your company
  • Is our market growing, flat or shrinking
  • What will future economic projections mean for our product/service
  • What is our customers decision criteria in deciding whether to issue us a PO
  • What technologies are impacting our industry and how can we leverage them
  • How might our customer buying behavior be changing in the future
  • What are un/under-served aspects of our market by ourselves and our competition
  • Where could a competitor disrupt us? Where could we disrupt our competition
• 3. Operational Effectiveness – Where do we want to go with our business
  • Where do we want to go long term with our business – what does good look like in the future
  • What does our internal Situational Awareness tell us we should improve upon
  • What does our external Situational Awareness tell us we should improve on
  • What new products or services could we launch
  • What new markets/subsectors should we expand to
  • What changing needs do our customers have, how could we meet these
  • How could we become more productive/efficient in how we fulfill on our product/service

Strategic thinking and planning are the ultimate muscle you want to build at your company. Doing so will help you build something special, something that a future acquirer will pay you a premium for one day. Use time as a friend and begin building this muscle today.

Don’t make this mistake in preparing your business for a future successful sale

Many surveys have been done of retired business executives. A frequent question in these surveys is, “if there is one thing you could turn back time and do differently, what would it be?”

The answer is very often the same. “I would have made certain personnel changes faster.”

When I ran businesses I was trained to look at my employees, especially my key managers, and ask the following:

• Who is holding us back in building the net worth of our company?
• Who is helping us build the net worth of our company?
• Who is supporting those that are building the net worth of our company?

The first group should not be tolerated and a change of some sort MUST be made now. The second group I need to identify so I can reward and retain them. The third group is where a lot of our tactical work gets done so certainly want to work on retaining them. But what I simply cannot let continue, is the first group.

Don’t have this same regret that so many executives before you have had. Think about your employees, especially your key managers in these three categories. Do your future self a favor by building a strong team today and that is a team that is helping you build meaningful company worth, don’t tolerate anyone holding you back.

Think about strategic planning in a new way to build company worth

In previous posts we’ve covered how companies can grow their net worth by building a strong strategic thinking and execution muscle. We refer to doing so as giving a gift to your future self because when you go to sell your business, an acquirer will see the results of what your strategy has built and could make you euphoric with the premium value, or worth, that they place on your business.

But far too many company owners and CEO’s don’t have teams that are strong at strategy, in fact they are mostly tactical. Very good at their product or service and good at supporting their customer but in the long run, this alone doesn’t build an asset that a third party will pay handsomely for. Equally unfortunate, many owners and CEO’s overcomplicate what strategic planning is so they never build an effective muscle in this critical area. Today, we want to give you a more effective way of thinking about your strategic planning.

Strategic planning is filling your gap. Here are the 3 steps:

• 1.) Ask yourself where is my company today?
  • Where are we strong in the market, where are we challenged?
• 2.) Ask yourself where do I want my company to be in the future – and how do I describe what will make me euphoric when you sell your business one day?
  • What outcome do you want your company to deliver for you personally and professionally one day?
• 3.) Ask yourself, in looking at my answer to question #1 and my answer to question #2, what’s causing the gap between the two – in other words, why isn’t your company already at your future desired state?
  • What are the primary gaps that are keeping your company from already being where you want it to take you?
  • Identify what steps, or initiatives, you could work on to eliminate the gaps – what are these steps and in what priority should you address them
  • In looking at the gap(s), do you believe your plan for your company could get you to your future desired state or is your plan not aggressive enough to close the gap(s). If your plan clearly isn’t going to get you where you want to be, what additional strategic steps could you take to close the gap.

We are intentionally over-simplifying strategic planning. But not by very much. Strategic planning is simply the art of knowing where you are, where you want to be and conducting an honest assessment of what’s causing the gap to keep you from getting there. Knowing the gap(s) and their magnitude will help you know today how audacious your plan does or doesn’t have to be.

Give us a call and we can help you take a fresh new look at the strategic planning at your company. Use time as a friend in preparing for your future euphoric exit event and leverage a new approach that could help you with breakthrough strategic thinking and accelerate building the net worth of your company.

Develop a strategic thinking muscle amongst your team to build company worth

The first step in preparing your business for a future successful exit, that will make you euphoric, is to ask yourself this question - Are me and my team thinking and dialoging at a truly strategic level or are we more tactical than we should be?

This question seems obvious and many leaders of private companies would quickly say yes, we are thinking strategically. But don’t answer too quickly. Are you truly discussing challenging near term and long term strategic questions or are you guiding the business using short term, tactical thinking that is based on information and knowledge that could be out of touch with reality.

President and General Dwight Eisenhower once said, “Plans are nothing. Planning is everything.” And more recently Mike Tyson wisely shared, “Everyone has a plan until they get punched in the face.”

The essence of these famous quotes is simply this. The real power of strategic planning is in the thinking, not the act of documenting the plan or planning. The planning aspect is simply the tactical piece that captures your thinking in a document so you can act. I’d be more willing to invest in a business where the team is excellent at thinking strategically and fair at the actual documentation/planning aspect versus a team that is weaker at the strategic thinking but great at documenting/planning their tactical thinking. Planning isn’t what is going to build the worth of your business long term, but strategic thinking can be game-changing to your company future worth.

Here are just a few strategic thinking questions to help you think more deeply about this muscle at your business:Do you clearly know the top 5-7 things a future acquirer will look at your business to see if it possesses and these top things will drive their valuation of your business?Do you clearly know the top 5-7 things a future acquirer will look at your business to see if it possesses and these top things will drive their valuation of your business?

• Do you clearly know the top 5-7 things a future acquirer will look at your business to see if it possesses and these top things will drive their valuation of your business?

• Are you clear on where your company brand and product/service offering are truly positioned in your served market – is your view of this positioning the same perception as your target customer?
• What are the top 5 decision criteria that your target customer thinks through in deciding whether to issue your company a purchase order? Have these criteria changed since COVID and might trends in your industry change them yet again?
• What step could an existing or new competitor take that could disrupt your business?
• What step could your team take that could disrupt your competitors?
• What’s your plan for the period ahead to drive more productivity out of your team/process and improve margins?
• How are specific technologies being applied in your industry and how do you anticipate they will be applied in the next several years to impact your business positively or negatively?
• Of the markets we serve (and want to serve), what is the growth trajectory of each? And what is our unique capability versus competitors that is of value to our target customers?
• What steps could we take to become “stickier” with our customers? Could we build our stickiness either as a result of a uniqueness in our product or service and/or through the customer experience we deliver?

Don’t rush in to planning, which is ultimately just documenting your thinking. Focus on THINKING strategically first. Start by identifying strategic questions you have about your business that your answers need to be refreshed or you realize you don’t have effective answers for. Building the long-term worth of your business doesn’t just happen by luck. If you’re looking to be euphoric one day by a third party paying you handsomely for your company, then start today with building the strategic thinking muscle of yourself and your key managers. Reward your future self by building the gift of strategic thinking today.

Avoid a common mistake when preparing for a company sale

Ask yourself this question – each year when our company does strategic planning, do we build our plan in parallel with building our new budget?

If your answer is yes, please reconsider. The reason is this. Budgeting has natural boundaries built into it and in great strategic thinking and planning, you don’t want to be encumbered by anything that might block the free flow of innovative ideas. Too often, executives go into their strategic planning already having financial boundaries in their heads related to revenue, margin and investment targets. These financial variables then steer the planning and will often squelch any creative thinking and dialog amongst your team. You inhibit members of your team from being confident to raise what if thinking because they already know the constraints that the budget will place on many creative ideas, so why bother bringing the idea up in the first place?

But what if you and your team initially remove the boundaries that a budgeting mindset creates and open up the thinking to include more what ifs? What if you talk with your team about the initial removal of financial boundaries, could this open up healthy new dialog? Could this have you working on new ideas and paths for your business that will provide greater excitement for your future potential acquirer to benefit from and therefore reward you with a premium valuation? Could new thinking help you from getting disrupted by a competitor or even play the role of the disrupter in your market space?

Obviously, the reality of financial constraints (i.e.: how much capital is available for investing in new initiatives) has to ultimately enter the equation. But it shouldn’t impede the initial creative thinking that could generate new ideas that ultimately may not require a lot of capital to execute. Owners that take this approach often find that there are many creative ideas that come forth and ultimately some don’t require the capital investment or risk that they were first concerned about. Wouldn’t you rather discuss the creative ideas and then modify or eliminate the idea if you are financially constrained to deliver on them versus never having discussed the idea in the first place? Don’t forget the adage, one good idea often leads to another.

The business environment continues to change around us. Lead your team to navigate the market opportunities and challenges that your business faces with creative and innovative thinking. This thinking is the first step in doing great strategic planning. Yes, budgeting and financial planning have to enter the discussion, but don’t let it influence the discussion initially. Building this thinking and planning muscle ahead of budgeting will have you on a better path to building the long-term worth of your business.

When you sell your company, the acquirer will look to understand your position in the market and it could impact valuation

As we’ve posted in many blogs, it’s more than just your financials that a future potential acquirer will consider when placing a valuation on your company.  Another non-financial factor they will look to understand is where in the market(s) you serve are you positioned? Where your company is positioned may excite the acquirer or it might concern them as it pertains to where they could take your business in the future.

What is a market position? It’s managing the 4 P’s (Product, Price, Place, Promotion). How your team manages each of these will ultimately position your company in the minds of your customers and you’re looking to have this perception be one that differentiates you from your competition in a positive way.

Here are questions to facilitate your thinking and to discuss with your team:

• Are we intentional about where we position ourselves in our market(s)? (i.e.: are we positioned in the low, mid or high end of our market as it pertains to the 4 P’s)?
• Are we confident that our target customer’s perception of where we are positioned in the market aligns with what we want that position to be? Or as an example do we view our position as serving the high end of the market but the customer perceives us to be in the lower tier of the market in terms of capability or offering or quality, etc?
• Does our market position appear that we are trying to be all things to all customers, or are we managing our market position to serve a target group of customers?
• Every industry and market is separated in to 3 segments; Good, Better and Best product and service offerings – where in your market(s) is your company positioned? And do you know which of these 3 is growing, flat or shrinking and could your future business be impacted by this shift? (i.e.: during good economic times, the Better and Best segments might be growing versus the Good and in down economic times, Best may decline as the buyer/consumer looks to save money moving to the Better or Good.)

Don’t let the market position your company for you. If this occurs then you have to hope it’s being positioned in a positive light. Be intentional about how you and your team manage the 4 P’s so you position your company exactly in the market where you believe it will best stand apart from the competition. Doing so today will pay you great dividends at time of a future exit in the eyes of an acquirer.

Alignment around strategic aspects of your business are crucial to building worth ahead of a future company sale

Ask yourself this question – if I asked my key managers individually the following two questions, would their answers be the same which would show we are aligned or would they be different?

• What is our company overall #1 strategic need –
  • is it we need more revenue?
  • more profit?
  • better fulfillment of our product or service?
  • or to deliver a better customer experience?
• What are the top 3-5 criteria that our customers use in deciding what vendor to select for our type of product/service? In other words, what 3-5 things must we be able to show a customer we offer before they consider doing business with us?

Don’t underestimate the power of having this discussion with your key managers. If key managers on your team view the answers to these questions differently than you do, that lack of alignment could be impeding your company worth building progress. Are they right, are you right? – what a great discussion to have and determination to make to eliminate worth building barriers and help you achieve a better exit one day.