Thursday, October 13, 2016
Way back in Lesson #13 we talked about how to create a good company culture . But, I recently r...
Way back in Lesson #13 we talked about how to create a good company culture. But, I recently read a research report on the topic from The Alternative Board ("TAB"), shared with me by their CMO, Jodie Shaw, which was summarized in this blog post on their website. It included a lot of quantifiable and actionable items around building a good company culture. Jodie shared the base dataset from the survey results with me, and there were a lot of gems in there that were not highlighted in their original post, that I thought were worth sharing with you. Jodie was kind enough to let me share them with you below.
SUMMARY OF SAMPLE STUDIED
TAB interviewed 100 small businesses in gathering the below results. Approximately two-thirds were B2B companies and one-third were B2C companies. They came from a wide base of industries, where professional services (31%) an manufacturing (29%) made up the majority. Their mean age was 14 years old and their mean size was around 25 employees and over $2MM in revenues. Which probably describes a lot of you reading this blog--either today or where you see yourself in the near future.
WHAT IS CULTURE & WHO DRIVES IT?
When you think about culture, most people are thinking about: management style (39%), employee experience (30%) and company reputation (18%). Which are most impacted by: business owners (45%), business executives (23%) and the employees (21%). Where 63% say business owners are the MOST important driver here, not executives or employees (which is a little surprising, as many owners are not often visible within the company).
WHAT IS THE OUTCOME OF A GOOD CULTURE?
Driving a good culture empowers people (43%), delivers business results (25%) and promotes good teamwork (22%). And, the benefits therefrom include: shared goals between management and employees (47%), connecting employees to its customers (24%) and fosters a collaborative environment (18%). Which in turn, drives productivity (39%) and improves morale (39%).
IT ALL STARTS WITH RECRUITING . . .
It all starts with hiring the right people who fit your culture, right from the start (91%), as it is difficult to get people outside of your desired culture to change. When recruiting employee candidates, you can best assess their fit for your company culture through: personal interviews (91%), employee feedback (64%), observing their interaction with staff (56%), calling their references (49%), hiring on a trial basis first (43%), reading their social media conversations (42%) and having them take a personality test (37%).
. . . AND KNOWING WHAT IS MOST IMPORTANT TO EMPLOYEES . . .
Employees are motivated by having trust in strong leaders (44%), more transparency around key issues impacting the business (21%) and more control in their day-to-day decision making (21%). Employees are most interested in enjoying their work environment (91%), being mentored (90%), having advancement opportunities (83%), getting training and continuing education opportunities (80%) and flexible work hours (66%). Only 30% thought telecommuting, working from outside of the home office, was important here.
. . . AND NOT LETTING KEY HURDLES GET IN THE WAY
The key obstacles and challenges to driving culture are: making sure you practice what you preach (43%), maximizing culture and profits at the same time (34%) and trying to make everyone happy, which is nearly impossible (18%).
MEASURING CULTURE IS CRITICAL TO SUCCESS
Like with any business decision, you can't manage what you don't measure. So, you need to be measuring your company culture, to make sure your company culture is improving towards desired outcomes. The companies in this study that had a strong culture, had a net promoter score (NPS) of 8.4 (out of 10), based on employee feedback about their company. The companies that had a weak culture, had an NPS of 6.2. With the average company had an NPS of 7.4. So, if you are below 7.4 when you test your own employees, you most likely have a culture problem on your hands.
Hopefully, you will agree there was a LOT of great data coming out of this TAB survey. Be sure to incorporate these learnings into actionable strategies within your business. Thanks again, Jodie, for allowing us to share these learning with our readers.
For future posts, please follow me on Twitter at: @georgedeeb.
Friday, October 7, 2016
Building a business or product offering is comparable to building a house. First you lay the fou...
Building a business or product offering is comparable to building a house. First you lay the foundation, then the rough carpentry, roofing, plumbing, electrical, HVAC, drywall, flooring and finishings, in that order. God forbid you try to install the plumbing after the drywall has gone up, otherwise you will have to rip it all down and start again, at double the cost. And, unless an architect has provided the builder with a clear blue print on what is being built, chaos will surely follow.
But, that only talks about the initial construction. Unlike a house, a good business or product offering is fluid in its design and is constantly trying to improve, to keep up with its competitors and its customers’ needs. Think of it as evolving from version 1.0 to version 2.0 over time, captured by the mantra: continue to innovate or die a slow death. But, the worst thing you can do, is try to build features of version 2.0 on top of flaws embedded in version 1.0. That is the equivalent of building a house of cards, where the whole thing can topple over with one wrong move.
Read the rest of this post in Entrepreneur, which I guest authored this week.
For future posts, please follow me on Twitter: @georgedeeb.
Friday, September 30, 2016
As you may know, Red Rocket has been on the hunt for a business to buy. We are specifically loo...
As you may know, Red Rocket has been on the hunt for a business to buy. We are specifically looking for digital technology companies with at least $500,000 of profit, where we can apply our sales and marketing expertise to help grow those businesses. We have looked at over 50 businesses in the last few months, but have yet to get to the finish line. I wanted to share some learnings with all of you, in case you are ever on the hunt to buy a company. As you will read: buying a business is really hard!!
LOTS OF HUNTING REQUIRED
You need to explore multiple channels in terms of knowing where to look. Leveraging your network, reaching out to investment bankers or business brokers in your space and even searching online, on sites like BizBuySell, BizQuest and BusinessesForSale.com, are all fair game. And, it is a fluid market, so new stuff comes up all the time, so you need to constantly be working these channels in high frequency, to make sure you don't miss anything important and be able to move quickly.
CUTTING THROUGH THE CLUTTER
Firstly, there is the process of narrowing down the targets that are most interesting to you. Even if you are narrowly focused, on something like e-commerce businesses, as an example. There are so many different types of products being sold across a wide range of revenue size, and needing to narrow them down to the ones which are most interesting for your needs. And, secondly, how a company markets itself for sale, does not always match up to the reality of the situations once you start due diligence. For example, they said they have $1MM of profit with the way they had been running the business (on a shoestring budget), but fully loading expenses on a going forward basis, maybe it only has $500K of profit, which materially changes the story.
DUE DILIGENCE SHORTFALLINGS
In addition to the financial due diligence shortfalling described above, there is often times operating issues that get uncovered during due diligence, as well. As an example, you think you may be buying a strong e-commerce business with a lot of direct traffic to their own website, but often times they are simply Amazon dependent sellers that look to Amazon for marketing to customers and fulfilling orders. That creates problems like, Amazon owning the customer list, not the business, and risks Amazon disintermediating this product seller with similar product or squeezing them on margins long term, putting the future financial health of the business at risk, entirely dependent on Amazon.
LOTS OF COMPETITION
There is a lot of money on the "sidelines", looking to be invested into interesting businesses. And, the more attractive the business, or more profitable the company, the exponentially more investors looking at the same business. Which means you need to be prepared to move quickly (with capital lined up) and potentially pay premium prices to outshine the other offers, or risk losing the deal.
MULTIPLE PARTIES TO PLEASE
There are typically three parties involved in any transaction: the seller, the buyer and the financing source. If you can finance the transaction yourself with your own cash or equity, that is preferred, given one less party to make happy. But, if outside private equity investors are required, it materially complicates things. Because not only do you need to like the business, but the investors need to like the business too. If any one of the "three legs to the stool" is wobbly, the whole deal can fall apart.
LOTS OF HOURS INVESTED GOING NOWHERE
Based on all the issues above, you often need to invest many hours of work into any single project before realizing it will never get to the finish line. This is not a really efficient use of time, but the process is what it is, and you really don't have a choice, unless you outsource the deal searching, due diligence process and fund raising process to others. So, be prepared to be frustrated and spin your wheels.
Hopefully, this gives you a good expectation of what to expect when starting to hunt for businesses to buy. But, if you are persistent and patient, all it takes is one deal to get to the finish line!!
Be sure to read these companion articles on Things to Consider for M&A, Setting M&A Goals and Potential Pitfalls with M&A.
For future posts, please follow me on Twitter at: @georgedeeb.
Tuesday, September 27, 2016
I recently wrote about the war between driving growth and profitability , and that you cannot su...
I recently wrote about the war between driving growth and profitability, and that you cannot successfully maximize both at the same time. The key point here was driving growth requires additional investment in your business, in the form of new sales and marketing activities, the expenses of which put negative pressure on your bottom line. But, what happens when that additional investment takes your business into a short term loss position?
You would be surprised how most entrepreneurs would answer that question, especially in family-run businesses where every business expense is perceived as taking monies away from their personal expense needs. There seems to be a general aversion to losses and taking on debt to cover those losses. So, instead of raising the required capital needed to fund the full need, they try to cut expenses in other areas of their business to make room in the budget for the sales and marketing need. Or, they simply lower their growth objectives to a more affordable level within their current budgets. All, reactions of entrepreneurs that typically don’t know what is required for long term success.
Why You Should Fund the Full Amount Needed for the Plan
At the end of the day, your long-term goal, should remain your long-term goal. If your management has collectively been hired to help you grow a $10MM business into a $100MM business over the coming five years, you are going to ruffle a lot of internal feathers if you suddenly switch directions to building a $20MM business. Those executives signed on to help be part of an exciting 10x growth story, not a 2x growth story, and you most likely will lose them with that move. Especially, if they were recruited with an equity stake in the business, and they suddenly realize it is only worth 20% of what they thought it was going to be worth. So, think through the ripple effects of your actions.
Why it is Perfectly Acceptable to Incur Debt
Where in the Business 101 handbook did it ever say debt was bad and should be avoided at all cost. That certainly could be the situation for companies with no reasonable way of paying the debt back, forcing them into bankruptcy if they miss their payments. But, for most healthy companies that are producing long term cash flow, debt is a perfectly acceptable vehicle with which to fund your short term needs. It is certainly a lot more affordable than diluting your equity ownership with a new equity financing. So, debt is not a bad word, it is a perfectly acceptable way to capitalize your business for up to 50% of its needs, provided you have a credible plan to pay it back. How do you think private equity firms make all their super-sized returns on their portfolio investments—it is not by investing 100% equity for those companies. Debt helps them leverage their equity resources, to stretch their equity farther and drive a higher return on their equity investment.
Why it is Perfectly Acceptable to Take on Losses
If you look at the growth curve of any startup, almost all of them start by incurring losses in their formative months or years, as the revenues are simply not there yet to cover their startup expenses. It is absolutely no different for later stage companies: think of your increase in growth investment as like another startup-like event that is perfectly normal and expected. It is not a bad thing to incur losses if there is a logical reason for the expenses, like needed investment to help jump start long-term revenue growth. That $1MM loss today, could be the difference between $50MM and $100MM in revenues five years from now. So, don’t focus on the short-term impact of the loss, focus on the opportunity cost of what you are leaving on the table by not incurring the loss.
Why You Don’t Cut Monies from Other Departments
And, taking money from other departments is not the answer either. Let’s say you need $1MM of new investment in sales and marketing. But, your technology department also needs $1MM for new product development needs. And, you only have $1MM of free cash flow to work with. Sure, you could give each $500K, but that only helps the business accomplish half of its desired goals. But, if you tell the technology department to delay your investment in new products for a year, it is not long before your engineers quit or your customers are not seeing innovation and move to your competitors. And, then you will have an even bigger financial mess to deal with.
The only time you should take out the hatchet and start cutting expenses, is when your business is broken and your economic model is flawed. Or, if there is an economic slump you are trying to navigate through. But, if you have a healthy business and you are trying to accelerate your growth, you really shouldn’t should take the hatchet to any part of your business in order to better afford the additional expenses. Instead, you should finance the full need of the plan, either with debt or equity, whatever is more appropriate for your specific situation. And, if you are simply trying to avoid diluting your ownership stake, I ask you one question: would you rather own 100% of a $20MM company or 80% of $100MM company?
Monday, September 12, 2016
You gotta love entrepreneurs. All their passion and excitement around the innovative new...
Tuesday, September 6, 2016
A startup cannot survive without revenues, and more importantly, revenue growth that will impres...
A startup cannot survive without revenues, and more importantly, revenue growth that will impress investors. And, oftentimes, this success rests squarely on the shoulders of your sales team. Therefore, your sales team will make or break your success. Hiring your sales team is arguably the single most important hires you are going to make. You have to get it right!!
Read the rest of this post in Forbes, which I guest authored this week.
For future posts, please follow me on Twitter: @georgedeeb