Tag Archives: planning

Successful Acquisitions Focus on Integration

Acquisitions are more prevalent when economies are tough. Companies hope that they will be able to achieve economies of scale by combining functions that require repetitive tasks. What is often underestimated is the work that must be done post-merger to actually experience the desired results. Yesterday, we examined the role of cultural due diligence in assessing the promise of combining efforts with another company. We assume that that assessment has been done and the decision was made to proceed. What is at issue is how to proceed!

Price Waterhouse Coopers conducted research that indicates that approximately 85% of acquisitions are seen as failures after the fact. In the UK, Cass Business School at City University of London studied 12,339 deals between 1984 and 2008. The findings were that price was not the best predictor of success, but that integration of the two companies was. The CEO Rountable recommends the following process and checklist for better integration:

Create a master to-do list broken down into themes including key items that arose in due diligence.

  • Allocate a manager, for each theme.
  • Be realistic with timetables.
  • Break items down into actions within 30, 60 and 90 days.

Checklist:

Finance/Costs

1. Get control of the bank accounts. Ensure all accounts are receiving the best group interest rate.
2. Establish operating budgets including capex with authorization guidelines.
3. Establish a new management information timetable. Metrics will be key.
4. Review balance sheets for adequacy of provisions.
5. Drive through planned cost savings quickly and effectively with clear communication.

People

1. Establish a reporting structure to ensure continuing trading is seamless.
2. Review reward structures to ensure continuity of management.
3. Anomalies between acquirer and target sales commissions will require urgent action as sales teams talk.
4. Quickly review of problem employment contracts and put resolutions in place to minimize exposure.
5. Organize immediate sales & customer service training.
6. Establish a key meetings schedule to allow free and timely flow of information.
7. Establish a clear understanding of the authority levels of the target’s leadership team.

Systems

1. Deal with exposures revealed by due diligence, prioritizing those related to keeping the trains running!
2. Plan for merging disparate systems or at least to allow them to “talk” to each other.
3. Lock down the security around customer databases.
Sales & Customers 

1. Ensure live deals under negotiation are not disrupted by the acquisition.
2. Cleanse all sales forecasts ASAP and integrate the revised version into the group cash forecasting system.
3. Review cross selling opportunities between key customers of buyer and seller.

PR

1. Communicate often and clearly with staff and key stakeholders externally, especially key customers.
2. Visit key customers to share the strategy of the merged group and why it’s good news for them.
3. Use the joint press release on the deal to motivate staff and impress existing customers.
Marketing

1. Set a timetable for all web site changes and allocate a webmaster to drive the project.
2. Collateral may need to change to reflect the new products of the merged entity.
3. Emphasize the benefits of the merger for the customers.

Legal

1. Draw up a detailed checklist of contingent liabilities.
2. Note earn-out implications for company management. Factor into the integration plan.
3. Insurance and risk exposure reviews should be conducted as a high priority.
4. Tax and accounting matters related to regulatory compliance may require urgent action.

Obviously, this list is by no means exhaustive, but illustrative of how one would go about dissecting potential problem areas and making adequate preparation. If your team will make a commitment to be thorough and anticipate things that could go wrong, you will know what questions to ask and what systems to take apart and reassemble. Integration is hard, but the effort is critical to successfully meeting the goals of the transaction.

 

Innovation vs Distraction: Got a System?

Last night, I attended an IdeaSlam at the Cary Innovation Center. Several different entrepreneurs–some with companies already and others with only ideas so far–each gave their two to three minute spiel before receiving feedback from the crowd and EntreDot staff. The variety of thoughts was impressive. So, too, was the passionate advocacy of what the presenters felt inspired to do. I wondered, though, what happens when passion wanes due to setbacks…

It’s not enough to have a good (or even great) initial idea…the best predictor of success is how the idea is nurtured, problems solved, and opportunities explored.  In order to become successful, the entrepreneur must continue to be curious. Reading extensively, attending events where nuggets of wisdom can be received, and simply taking time to think are all ways to keep the idea alive.

While a commitment to pursue a free flow of learned information is admirable, what is most desirable is learning how to discern between them and hone in on the best ones. Best practice is to develop a process to vet new ideas (not a totally new business idea mind you, but rather a “how to,” “when to,” why to” pursue your original one. With a process in place, distinctions can be made between new opportunities and new tactics or ways of doing what you do. A value judgment must be placed on whether giving the new thought earnest heed and an investment of time and effort will move the organization closer to accomplishing its mission or become a diversion.

In addition to evaluating new thoughts on the diversion–>mission scale, it can be helpful to analyze them based on internal and external impact. Does pursuit of the thought give the company a chance to accentuate something it’s good at? Or, overcome something at which it is weak? Does the thought have the potential to help the company thwart a market move by a competitor, or pioneer a new “blue ocean?” 

Thirdly, what other ideas have to be set aside to pursue the new one(s)? Resources are in high demand in a start-up company. If talent and time and “treasure” are invested in something new, what might suffer by comparison? Perhaps your “back of the napkin” cost vs. benefit analysis indicates that the new thought is worthy. Then what?

The new thought must “grow legs!” In order for it to have its intended effect, planning must occur. Figuring out what steps need to be pursued includes breaking a big idea down into smaller ones and devising a custom approach for each one. Within approaches, strategies and tactics, with actionable due dates, become the blueprint to build a better mousetrap.

Prepare Yourself to Become an Entrepreneur

There are two divergent schools of thought about whether entrepreneurs should get big company experience before starting a new business.  Some feel that learning how to run a department or project is a good training ground for managing a company. The argument is that entrepreneurial lessons are costly and it is better to learn “on someone else’s dime.”

Dave Lavinsky (the founder of Growthink), in an Inc magazine article, did start out with a corporate career, but feels it’s a bad idea:

Sure, you can learn some things from big companies–mainly how to run a big company. You’ll learn the type of corporate structures that are needed and the key departments, etc. But most of that doesn’t help you when you first start a company. For that, you need to think very differently. You need to think and act like an entrepreneur, which is the art and science of accomplishing more with less (less money, less human resources, less time, etc.)

Big companies are not great at accomplishing more with less, nor are they great innovators. So it’s very easy to pick up bad habits that actually make it harder to start your own business.

While the highly creative type can come up with an idea, it is often said that strong technical capabilities don’t necessarily translate to management and leadership abilities, let alone other significant soft skills requisite for successful start-ups.  General management/ jack-of-all-trade knowledge usually only comes through experience.  This factor prompts delving into how an entrepreneur can find the necessary experience to be successful. Lavinsky says, 

One option is to find a slightly older co-founder who has more managerial experience. Another option is to form a Board of Advisors consisting of several experienced entrepreneurs who lend guidance and advise. Another option is to raise funding and use it to hire several seasoned managers to help guide you.

If these options–either separately or pursued in concert with one another–seem daunting in terms of how someone with no prior business experience could feel qualified to identify and select such input, then there are other ways to gain experience besides working for a big company. One is to work for a VC-backed start-up. Another is to work as an independent sales contractor. Regardless of the type company that you may ultimately start, learning how to overcome rejection and meet quotas is going to be very important.

In summary, most successful entrepreneurs feel as though big company experience is incongruent with the skill development necessary to become a good entrepreneur. Yet, either by association with others possessing experience who join your start-up, or by acquiring skills before start-up, every entrepreneur can prepare.

Gifts Aren’t Us

You know how difficult it can be to come up with an idea for a present when you’re down to the wire? If not, you may not appreciate the business concept of the cover story of Entrepreneur Country this month–unless you know someone who suffers from the malady. Like a guy. Or a lot of guys. Many guys opt for the classic gift card solution when faced with such a dilemma. With Man Buys Present, however, one can come off looking great–even when the only good idea was to outsource what is usually a painful, unimpressive task.

Rachael Robertson (a former HR exec with Hewlett Packard in the UK) and Kate Rider (a very successful property developer) met at school and soon launched their idea. One (Rachael) is an ideas person, the other strong on management and implementation. Key observations influenced their decision to go into business:

  • a good reputation is hard to earn and easy to lose
  • having a really smart husband who gave gifts that showed no sensitivity or understanding
  • a solutions mentality is very different than trying to be thoughtful

With these factors in mind, they developed a web-based business with mass customization features. In addition to a sourcing strategy that aimed to procure products from exclusive suppliers, the duo had a website built with nifty “bells & whistles”:

  1. A “Get Out of Jail” concept to buy restitution gifts on short notice,
  2. The “Buy One, Get One Free” option to buy something cute or funny to complement a serious gift,
  3. Assistance for dads buying gifts for their spouse to be given by their children,
  4. Facebook downloads of birth dates,
  5. Gift suggestions, and
  6. Tracking of prior gift purchases.

Kate seems to really like the entrepreneurial pursuit, noting that big business has taken it on the chin in the UK and around the world. Rachael says that the stress  she feels is offset by having fun. Both women enjoy the flexibility to work remotely, while simultaneously juggling child-rearing and spouse time.

When asked to comment on how they feel about the role of the education system in Britain in preparing their children (or others) to launch successful businesses, they lamented that traditional jobs are still the focus of skill development. Access to adequate capital for those who are not born into money is cited as a big challenge. Kate recommends that students in all subject areas learn finance (distinct from “math”) as a critical life skill. Further, she offers that all fields of study would benefit from seeing their talent or skill through the lens of running a business for oneself. Learning how to explain a business concept and position both the business and yourself as credible are great life skills.

Learning how to not let perfection control your life is an acquired mindset they recommend. Receptivity to different approaches gives the leadership team the ability to grow themselves and the company well beyond what they would have thought. Finally, the ladies have each learned how to turn aspects of their personality that they don’t like into strengths in a collaborative environment.

A few thoughts, then, in reaction to this heartwarming story:

~ American education is in a similar rut to British–we need to do something about it!

~ We all observe problems that need fixing, but rarely start a business to solve the problems.

~ Offer solutions after being thoughtful!

 

Advice For Entrepreneurs RE: Succession

Sometimes, big company practices need to trickle down to the SMB world. Whether the subject is a hot start-up with co-founders who must one day shed decision-making authority or family-owned businesses, the selection of successors is a critical topic. Without true outside boards of directors, these decisions often become volatile and can ruin relationships as well as cause collateral damage to the company and its valuation. Having seen the drama play out more often than I’d like, I read extensively about ways to “head off at the pass” struggles that need not become an entrepreneur’s undoing.

A law firm client of mine has a nice boutique corporate practice with a penchant for corporate governance topics. Though I subscribe to Google alerts on corporate governance, I also rely on content curators like Beverly J. Conquest (@bconquest) to follow feeds that I cannot daily read. Conquest came across an HBR blog post recently, “Advice For Boards in CEO Selection and Succession Planning” that featured some superb insights from David A. Katz and Laura A. McIntosh. Their original work was featured in the New York Law Journal. Certain excerpts are featured below:

Selecting the chief executive officer and planning for CEO succession are among the most important responsibilities of a company’s board of directors. In ideal circumstances, the succession process will be managed by a successful and trusted incumbent CEO, with the board or a board committee overseeing the process, reviewing the candidates and providing advice throughout. However, in exceptional circumstances, such as when the board lacks full confidence in the incumbent CEO or when a crisis occurs and the normal succession process cannot be utilized, the board will need to take the lead in managing this crucial task…In 2011, the CEO turnover rate increased as compared to the previous two years…Directors facing these challenges should keep in mind that the attitude and smooth functioning of the board are crucial to a sound process and good result, and that the fates of the board and its chosen CEO often are inextricably entwined.

Process Is Key

CEO selection is, first and foremost, about the future. As the adage goes, one picks a general for the next war, not for the last one…We advise that there be a comprehensive discussion at least annually regarding internal candidates and planning for emergency circumstances…Breakout sessions of the independent directors should include regular discussions of the succession plan, so that the lead director can hear the views of the other independent directors privately. Boards should be active in identifying talented leaders so that there is a bench of qualified internal and external candidates at the ready. The directors may wish to seek first-hand exposure to the company’s most promising executives at board and company functions and may consider working with the CEO to establish policies and procedures for the development and evaluation of internal candidates…

In order to set priorities and find candidates who meet their requirements, directors must first establish a well-designed selection process, which may include the advice of counsel and other external consultants. A sound process will enable the board to achieve its goals while at the same time providing a roadmap to keep the directors on course through the inevitable difficulties they will encounter. In the event of disagreements, the process stands as the neutral, pre-agreed path to which the directors and any advisors can return in order to continue progress toward the final selection.

An organized, careful process is necessary to undertake the substantive evaluation of candidates’ capabilities. There is no better guide than past performance; however, in many situations, red flags from top executives’ pasts have been ignored by boards in their selection process, and the choice has, to some extent predictably (in hindsight), been a mistake. When boards feel rushed into selecting a new CEO—which can happen when the company faces a crisis or lacks a succession plan—due diligence can suffer. The board should look for examples in each candidate’s past that bear directly on how the candidate will cope with the future challenges identified by the board.

Two Elements to Consider

There are two key corporate-governance related elements that should be near the top of a board’s list for evaluating potential CEO candidates, particularly when the board is not able to rely on the incumbent CEO to lead the succession planning process. The first is that the new CEO should be a good fit culturally with the board and the company…The tone set by the CEO helps to shape corporate culture and permeates the company’s relationships with investors, employees, customers, suppliers, regulators, local communities and other constituents…The second key element is that the CEO should have a long-term vision for the company that accords with that of the board. A crucial aspect of this is the ability to resist the powerful forces of short-termism…

Healthy Board Dynamics

A healthy board dynamic is essential to an effective succession process and positive result…A 2009 working paper published by the Harvard Business School’s Corporate Governance Initiative observed: “As a practical matter it is difficult, if not impossible, to find directors who possess deep knowledge of a company’s process, products and industries but who can also be considered independent.” This lack of deep experience and expertise can make it more difficult to identify and evaluate candidates from other companies in the relevant industry or even from within the company…

CEO selection is one of the most formidable, as well as one of the most consequential, decisions a board must make. Using a thoughtful selection process, a well-functioning board that has taken the time to consider CEO succession on a regular basis will be in a good position to identify its top priorities and the best-suited candidates should a crisis present itself.