Category Archives: Leadership

Do You Want a Chinese or Indian Fender?

Fender Musical Instruments Corp’s announcement that they will seek an IPO to raise cash to pay down senior debt is not so newsworthy. The other intended uses of proceeds are, however, very interesting. Fender is looking ahead to emerging market growth as a source for sales to take the company from the $1BB annual revenues level. China and India are warming to guitar music and Fender wants to promote electric guitars to all who will jump on the bandwagon.

Fender was sold  by its founder to Columbia Records in 1965 and then it was purchased by current ownership in 1985. Currently, 47% of sales come from outside the United States and are distributed among 85 countries. Gibson is a major competitor on the new guitar front; resellers like eBay on the used. The brand legacy in rock ‘n roll is ingrained in the American pop culture, with musical icons like Eric Clapton counted among enthusiasts. In fact, a Clapton Stratocaster sells for $2,000+. As emerging markets embrace capitalism and portions of Western culture, consumer products companies like Fender want to make sure they explore market opportunities.

This pattern brings up an interesting question–how has your business embraced globalization, and to what degree? Are emerging markets (including the “BRIC” nations of Brazil, Russia, India and China) on your radar? How might they become more germane to your business strategies? Many readers may have seen the “Shift Happens” slideshow what trumpets the rate of change in our world, the shifting balance of economic power, and the surge in education in countries that did not used to be democracies. One of the sure-fire take-aways from the slideshow should be that we need to embrace new paradigms for almost every area of life if we are to remain competitive.

What types of innovation and change are you contemplating? Even with a solid history of selling Telecasters and supplying the like of Jimi Hendrix with musical equipment, Fender continues to push the envelope. Acquisitions of other brands including musical instrument accessory distributors, launching of a new handcrafted guitar brand, and co-branding deals with Apple and HardRock Cafe all are indicative of a commitment to continuously change the competitive landscape.

Again, are most of us using an old wineskin, or do we embrace new opportunities–even seek them out? How bold are you in the strategic moves you are contemplating right now? Think purposefully about whether your business model could use some innovative approaches. Determine to do whatever it takes to create value–you will be so glad you did!

Tsunami On Hold

In a recent article, “Six Reasons the Tidal Wave of Business Transitions Has NOT Happened,” Wayne Rivers of The Family Business Institute in Raleigh NC suggests why the huge predicted transfer of closely held business ownership and management has not occurred. He writes of delayed retirement, lack of specific vision for retirement, and inability to sell the businesses as key factors. The result is that the outcomes anticipated have been put on hold–but it’s still a question of when and not if.

We concur with Mr. Rivers’ assessment that most businesses are not ready for sale. Some do not generate enough top line revenues; others do not create enough earnings/profits. As we have mentioned in prior posts, a critical part of any business–be it a family-owned one or professional services firm, or any of a myriad of other combinations–is the executive acumen of the team leading the business. If too many decisions are made by to few people, the business is flat out worth less money. Since the person/people selling are planning an exit, what executive prowess exists prior to the sale either will not persist in the near term or soon thereafter. Any buyer studying this phenomenon would have to be wary of buying a controlling position or entire company under these conditions. The buyers, in most cases, do NOT want to manage the company; they want a qualified team in place who can manage it well on their behalf.

When privately held business owners recognize this major hurdle, they can begin to devise a way to leap over it. Often, the advice of a consultant or coach can help in multiple ways. First, by preparing the management team to grow in their authority and decision-making. (The team must, of course, be committed to stay as well.) Secondly, the senior and retiring leaders can be coached to build a new future for themselves that is challenging and rewarding. Finally, a plan can be developed that takes into consideration how to prepare the various stakeholders for the transition to come.

For those who prepare their business systematically for sale, there is better news on the horizon. Private equity groups have money to invest, are paying more than they have in four years, and are looking for opportunities to build a segment presence through roll-ups or narrowly focused portfolios. According to a mergermarket.com report last year, 19% of deals were in industrials and chemicals, 18% in services, and 15% in technology, media and telecommunications in the twelve month lookback period.

In the same mergermarket report, private equity executives said that inadequate management reporting was a top problem 47% of the time and management capability limitations 33% of the time. Shore up your management methods! Prepare to ride the tidal wave of interest in buying private companies as an outcome of the hard work you perform to get your leadership team up to speed to lead without you.

 

 

Super Blues Day

When we are in a presidential election year, the first Tuesday in March brings a flurry of primaries and caucuses that are a strong influence in the nomination process. Often, the candidate who does exceptionally well on that date is propelled into a position of strength at the convention due to the results. The other candidates can be left “singing the blues” if their candidacy is negatively impacted by their showing. In many ways, business performance has its own “Super Tuesday” impetus.

The budgeting process in professional services firms can be likened to the Super Tuesday effort. Once per year, strategic planning leads to goal setting and the development of the financial plan for the upcoming fiscal year. Decisions are made to invest in recruiting, professional development, marketing, client development, client retention, and the other line items that constitute the operating accounts of the firm.

Champions of the first five listed disciplines are almost pitted against one another in vying for limited “discretionary” funds. The opportunity to articulate a business case for greater investment in the category of one’s specialty is a beauty pageant “won” usually by the fortunate individual(s) whose programs align with where the executive committee is motivated to invest. Those who do not receive the funding they would like are similar to political candidates who do not win enough states–their careers are not over, but they realize that they have suffered a setback that is visible to all.

To avoid the “bluesy” sense of winning and losing, firms need to become more savvy in the way they approach the process. Many firms with less than 50 total employees don’t have the luxury of having full time staff for even one of these very specific roles. There may be a generalist who oversees multiple categories (e.g. an HR director, firm administrator, or combo marketing and business development person), but not specialists with an experience base as deep as the billable professionals have in their own respective fields. What’s a firm to do? How about hiring the expertise on a fractional basis? In this modern age of telecommuting, contract workers, and flexible work environments, chances are high that one could secure insightful contributors without having to provide benefits or create a new full-time position.

The bigger challenge, however, is not simply getting professional (in their own field) leaders, but changing the strategic planning process to become more inclusive. Having these leaders participate earlier in the strategic planning process can yield great results for your firm. It may very well be that they would bring competitive intelligence about what other peer firms are doing. It is likely that they can sharpen one another’s areas by hearing what is of concern and passion. At the very least, they become more actively engaged stakeholders in the decisions that are made with regards to goals, budget and direction.

Avoid the post-budgeting blues by changing the way you develop your strategic plan and goals. Professionalize the management of your firm through intentionally building a team of smart leaders in the “back office.” Create the culture where your firm looks forward to your internal Super Tuesday season as a way to coalesce and build momentum!

Cultural Due Diligence Breeds Success(ion)

In a blog post (“The Human Side of Due Diligence”) of October 2011, Michael Bittle talks about the challenge of sizing up a company’s culture in the midst of a private equity transaction. Even if your team is savvy in its financial analysis, interviews customers and executives, and puts together airtight LOIs, he argues, you can miss the important undercurrents that are culture.  Too many companies are dressed up for a suitor, only to prove to look to good to be true.

A recurring drama plays out wherein performance swoons, key managers leave, and morale sinks as well. The investors scratch their heads and wonder what has happened. Enter the concept of the informal culture–what values, unspoken agreements, collaborative tendencies, etc existed prior to the transaction. Bittle argues that, in the heat of getting a deal done, that the quant jockeys often have neither the time nor the training to be extra discerning about these nuances than can be a company’s undoing.

In the Research Triangle Park, we are developing a national reputation for angel or venture-backed technology and life science start-ups that all aspire to make their commercialized product/service a household name. Along the way, they receive outside investment and some matriculate to a successful revenue path that ultimately leads to a liquidity event. Very few take an approach wherein the founders want to stay with the company as it matures. This can be good and bad. In the cases where the founder brought an academic mindset to enterprise, it is often better that professional management run the company longer term.  On the positive side, emotional bonds are built between employees 1, 2, 3 …and #50, #100, etc. These bonds create stability, a sense of community that can be disrupted by the introduction of outside ownership/management.

George Bradt, in an article in Forbes on February 8, “Corporate Culture: The Only Truly Sustainable Competitive Advantage,” takes the position that competitors, given time and money, can duplicate almost anything except culture. “In sustainable, winning cultures, behaviors (the way we do things here) are inextricably linked to relationships, informed by attitudes, built on a rock-solid base of values, and completely appropriate for the environment in which the organization chooses to operate.”

Organizational development principles can be brought to bear in the due diligence process if the consultant focuses on soft issues rather than concrete, easily measured ones. Whether an EQ assessment is administered to managers, or some type of DISC or MBTI with their direct reports, it can be helpful to understand who is the backbone of the company and how they may behave/make decisions. Transparency can drive smooth transitions if the former owners/executive team is willing to give the private equity/acquiring company access to employees earlier in the process. If people are made aware of the potential transaction and given an opportunity to design their own future, they are more likely to be/remain engaged in positive behaviors and outcomes.

Eventually, the first generation leadership will have to give way to new leaders, even if there is no transaction. The succession is more likely to be successful if the culture is aligned with the company direction through thoughtful interaction with employees and casting vision for how their contributions will continue to be needed. Such best practices are more likely to reinforce trust and a desire to build something great together.

Firms Outperform Industry By 22% With Design, Develop Deploy Approach

Would you like for your firm to be a market leader? Who wouldn’t, right? Yet, are the firm leaders willing to do what it takes to distinguish themselves from the crowd? If you are the managing partner, practice group leader, executive committee member, or key client group leader, you set the tone for culture and performance.

McKinsey found in a 2010 study that organizations who rank in the top quintile in talent management outperform their industry by 22%. By talent management, we mean grooming professionals throughout their careers to enhance competency, contribution, and performance–regardless the yardstick. However, traditional talent programs often fall short because they do not incorporate the best practices of organizational development.

Layers for Development

Organizational development components are more holistic and  include organization design, business development, work generation and management, and strategic business model communication.  The OD spectacles view recruitment, nurture, and retention of  legal talent as an expression of firm values, identity, vision, goals, strategy, and essence.  As Jim Collins in Good to Great describes the importance of helping the right people find the right seat on the bus, it is important inside firms to develop a system for aligning talent management with firm management.

The graphic to the right depicts the need for a cascading set of goals whereby organizational goals are broken down to team/practice area/section goals, and further still to individual goals. As firms find a way to chart a career development path that includes a competency model and clear role maps, the members of the firm and the teams on which they serve become more proficient in serving client needs and reaching business objectives.

Clarifying responsibilities for client acquisition, project management, and client retention guides the development of assignments that groom not just the technical, but also the soft skills necessary for achievement.  Competencies such as self awareness, self regulation, motivation, empathy and social skills  can be developed as a vital part of an overall career development plan that intentionally aligns experience, assignments, and mentoring needed with the exigency of getting billable work done.

  • Design your organization for success
  • Develop your people for greatness
  • Deploy human capital to serve meaningful client needs