Category Business & Strategic Planning

November 3, 2015 by Jenifer Bartman

Speaking Tour, Day 4

DAW traveled to Toronto for the fourth and final stop on the Fall, 2015 speaking tour. We were greeted by sunny, warm weather and an enthusiastic group; a great way to end our tour. The mix of participants in the room, the services they provide, and their client experiences always make the sessions interesting and unique. Recognizing that a real opportunity exists to build a growing client base for the long term is an exciting prospect!

Key thing to think about for Day 4: It’s been raised on every stop of this tour that some clients tend to fall into the same difficulties time and time again; why is this the case? Much of what needs to be learned represents a mind shift, a new way of thinking, and although these concepts might be understandable, they can be very difficult to put into practice. This is just one reason why advisors have an important role to play in supporting and coaching their clients to meet and beat the challenges they face.

Thanks everyone who came out to see us, participated, and stopped by to share experiences and tell us that they enjoyed the day. It means the world to us!

October 30, 2015 by Jenifer Bartman

Speaking Tour, Day 3

Our tour travelled to Calgary for the third day of the Distinguished Advisor Family Business and Yearend Tax Planning Workshop Another great group, with lots of interesting questions and experiences. It’s always a privilege when advisors share their experiences, with the goal of identifying how and where they can better help their clients.

Key thing to think about for Day 3: Identifying the right role for a business leader to take on as a company grows is critical, as time is a precious resource that needs to be channeled effectively. Advisors can play a key role in helping their clients understand where they fit best, setting the stage for bringing in the right resources to build growth capacity. Too often, clients make the wrong choice, resulting in costly setbacks for the company.

Thanks, Calgary, for the participation and hospitality. Next stop: Winnipeg (to take in some Halloween festivities!), and then on to Toronto!

in Business & Strategic Planning / Entrepreneurs / Events / Leadership 0 comments

October 29, 2015 by Jenifer Bartman

Speaking Tour, Day 2

The second day of the Distinguished Advisor Family Business and Year End Tax Planning Workshop was in Vancouver; thanks to everyone who participated! I’m always interested to hear the questions that are raised, as well as the experiences that advisors have with their clients. This active, in the field interaction helps to keep my presentations practical and real, as I believe that this experience puts advisors in the best position to help others.

Key thing to think about for Day 2: Investor ready business planning isn’t just for start up and early stage companies; it is also extremely important for growth stage businesses, as well as those that are considering succession. As I’ve raised on every stop of this tour, the vast majority of business plans I’ve seen in my career are not investor ready (most are nowhere near ready!), and this is a significant problem for those seeking capital. I’ve developed an approach based on my years in the venture capital industry, so if you’re going to invest the time to develop a business plan, do it the investor ready way!

Thanks to the Vancouver Club for their hospitality. Up next: Calgary

in Business & Strategic Planning / Entrepreneurs / Events / Leadership 0 comments

October 28, 2015 by Jenifer Bartman

Speaking Tour, Day 1

A big thank you to everyone who joined us in Winnipeg yesterday for the kick off of the Distinguished Advisor Workshop Family Business and Year End Tax Planning session. Lots of lively discussion and great questions in my sessions! The real benefit of attending this type of event is being in a better position to help clients improve what they do, fuel successful growth, and generate business for both clients and their advisors over the long term.

Key thing to think about after Day 1: How to put your business clients in the best position to capitalize on opportunities in the marketplace. As far as I’m concerned, someone will benefit from marketplace opportunities; why not your company? I’ve developed strategies to help companies do exactly that, so contact me directly for assistance with your business.

Thanks to the Manitoba Club for such a great venue! Up next: Vancouver!

in Business & Strategic Planning / Entrepreneurs / Events / Leadership 0 comments

September 16, 2015 by Jenifer Bartman

EVENTS: Coming to a City Near You!

I’m pleased to be on the road again this Fall with the Distinguished Advisor Workshop (DAW). Our Family Business & Year End Tax Planning sessions will take place in Winnipeg (Oct 27), Vancouver (Oct 28), Calgary (Oct 29), and Toronto (Nov 2), so be sure to confirm your spot today!
My sessions are all about building a more independent company; from business planning in a manner that resonates well with investors, to taking the right steps to increase capacity to generate growth beyond what a business leader alone can achieve. As an experienced advisor, I’m able to bring practical strategies to help leaders overcome the typical growth related challenges and setbacks that occur along the way. This is powerful leverage for achieving success in a competitive world!
As part of our session, we will ask participants to identify the “one big thing” that they could do to help make their company more independent. Have you considered this lately?

in Business & Strategic Planning / Events / Leadership 0 comments

September 15, 2014 by Jenifer Bartman

The Succession Conundrum: Business leaders, the weak link to successors, and the companies who try to finance them (Part 2)

Published by the Canadian Venture Capital Association in Private Capital

If succession planning is a challenge for business leaders, potential successors might describe the process as mysterious. While a business leader or founder has typically been at the helm of a company for some time (if not a prolonged period of time, in many cases), potential successors are often just trying to find a way to get to the table. One day, the founder is keen to “step back” from the company, while the next day, “retirement” seems vague and far in the future. For someone wanting to aspire to a leadership (and ownership) role, this type of situation can be a difficult to deal with on an ongoing basis.

Whether a potential successor is a longstanding “2-IC” (2^nd in Command), management team group, or family member, their vantage point might provide relatively little information in terms of how the company actually operates, the business leader’s true expectations around succession, and what it would actually take for a transaction to occur. Add in the mixed messages that can be so common with the issue of succession and it might be enough to cause a potential successor to scramble for the door, vowing to create an opportunity all their own (and on their own terms).

This reality should be sufficient to get the attention of business leaders who are contemplating succession, if not outright relying on it as a means to monetize their ownership position. Given that a recent survey conducted by the Canadian Federation of Independent Business (1) found that the top barrier to succession planning is finding a buyer/suitable successor (56%), those seeking to exit their business should recognize that finding (and keeping) a potential successor is not to be taken lightly. Unfortunately, too many potential successors find just the opposite to be the case.

The Successor Perspective

Something that many potential successors have in common is that they are keen; to implement their ideas, take the company in a new direction, and just “get started”. Many have a reasonable expectation that succession will occur at some point in time, either by virtue of previous conversations on the topic, or perhaps, in the case of a family business, where succession is “expected”. Call it an informal succession plan.

As a result, potential successors want to better understand how and when a transaction might occur.

This is particularly true in the case of individuals who have invested a number of years working in a company, learning how it operates and directly contributing to building its wealth. They reach a certain age or point in their careers when they truly need to know: (i) if a succession opportunity actually exists; (ii) when it would occur; and (iii) what the financial implications would be, particularly in terms of the cost to undertake the transaction. In the absence of this information, a successor’s next best alternative is to move on to other opportunities, and given the effort they have invested in building the company (often, to the direct benefit of a shareholder group in which they are not included), this is understandable.

The Opportunity

Identifying a qualified and willing successor is only the beginning of the succession process, as there is often still plenty of learning to do in order to fully assume and conduct the leadership role. But even before this can happen, the parties need to be able to arrive at an agreeable value and the successor has to have the ability to pay, either by way of their own funds or through securing financing (in the absence of either of these options, it often comes down to the departing business leader to agree to be paid over time). Since the Canadian Federation of Independent Business survey found that valuing the business (54%) and securing financing for the successor (48%) are the second and third highest reported barriers to succession planning, all involved in the process need to take note.

For potential successors to chart their course, there are a number of things that can be done on a proactive basis to better understand the particulars of the opportunity, as well as getting a plan into place. Seeking advice from those who have undertaken or financed business transactions can help to bring context to the situation, in terms of its appeal and how to help move the process forward. Here’s how:

Look in the mirror. The truth is, not everyone is cut out for a leadership role. Leading a company, in terms of both the role and ownership aspects, can be significantly different from the experiences of a potential successor thus far, including the scope of responsibility, level of risk, and degree of commitment. As an example, in the event of insufficient cash flow, owners typically bear the responsibility to inject additional funds or decrease their own compensation to cover shortfalls. This type of uncertainty might fall outside of a potential successor’s risk tolerance level.

Potential successors need to take a hard look at all aspects of assuming a leadership role, objectively balancing both the risks and rewards of ownership. Advisors can help by providing independent feedback or helping successors to undertake a self assessment to better understand the types of roles in which they fit best, before proceeding any further.

Assess the situation objectively. Due to the inherent uncertainty that often clouds the succession process, potential successors need to be able to get to the heart of the situation, to first understand whether or not an opportunity actually exists. This uncertainty is a relatively common frustration, and the reality is that succession is only going to happen if a business leader is committed to undertaking the process.

Advisors can help potential successors to see the situation for what it is, as well as suggest approaches to further discussions with the business leader or how succession could occur. In addition, successors might need to take action to put the situation in context, by identifying other possible succession opportunities as a comparison. Although business leaders might not like this very much, the reality is that there are situations where succession simply will not occur, no matter how much a founder might indicate otherwise.

Communicate. Given that succession can be a sensitive topic, it’s not uncommon for the parties to have difficulty having meaningful conversations around the issue; this can be particularly true in family businesses. Since succession represents a complex business transaction with numerous details to be considered and negotiated, it won’t just magically happen. Given the sensitivities, these conversations tend to get deferred and delayed, making succession seem less likely as each day passes.

Starting the succession dialogue between the parties is critical, to map out an agreeable approach, but to also identify situations where an arrangement might not be possible, allowing both sides to pursue other opportunities. Advisors can help to start the conversation in a non-confrontation manner, in an attempt to find common ground, where it exists, and cover off areas that need to be addressed. This approach can also help to fill in knowledge and experience gaps that are common in the case of potential successors.

Financial implications. Discussing money is often tough, not just because of the calculations and various financing structures, but simply because the parties might find it difficult on a personal level. In the case of family businesses, parents might be sensitive to the financial situation of their children, while the next generation might be concerned about not “offering enough” as compensation for all of the work that has been put in to building the company. Couple this with a founder’s understandable desire to receive fair compensation to finance the retirement they have been dreaming of and negotiations can stall.

Potential successors often do not have a lot of experience in this area, and financial partners can be helpful in terms of transferring knowledge and suggesting approaches that could meet the needs of all parties. Regardless, those who are serious about taking on a leadership and ownership role at some point in the future need to ensure that their professional development program includes business financing, sooner rather than later.

Although it’s true that good successors are in short supply, all potential successors need to take a hard look at not only what is required of them, but also whether or not the opportunity at hand is viable. In times of investment (and that’s what succession is), bringing a professional approach to the table is a must to ensure that the right deal gets done.

Source:

Passing on the Business to the Next Generation, Canadian Federation of Independent Business, 2012

in Business & Strategic Planning / Financing / Leadership / Succession Planning 0 comments

June 27, 2014 by Jenifer Bartman

Market Focus

As much as executives have to manage what’s going on inside a company, external developments and the environment at large are at least as important, if not more. If being in business is all about developing and delivering products and services, it is the marketplace (including customers and competitors) that makes this effort relevant. Think about it; in the absence of a customer need for a particular product or service, businesses really don’t have much to offer. Similarly, the presence (or absence) of competitors can also determine whether or not a company has a meaningful market opportunity. This reality should be a humbling reminder for all executives.

Successful business leaders know that it’s critical to pay close attention to what’s going on outside of their company; committing at least 50% of their time to keeping a close eye on the external environment. This includes monitoring things like customer preferences and demand levels, competitive developments, and emerging trends on a number of fronts, including consumer behavior, product development, regulatory matters, technology, and economic conditions. Staff members at a less senior level might think that these areas don’t have much to do with “making the product”, but in fact, it is the marketplace that should drive a company’s internal efforts. Afterall, what is the value of a product or service that no one wants, is obsolete, or readily available through multiple sources?

In this series, we have already considered the importance of a number of skills, including, risk management, generating results, and communication. Here’s more about why successful executives understand the importance of integrating an external focus into their perspective.

Where it Goes Wrong

Companies have a tendency to get caught up in internal matters, including roles, staffing, and “the way we do things around here”. Another area where businesses often spend a lot of time (and in many cases, too much time) is in contemplating the products and services that they deliver, particularly when technology is involved. Although having great products and services is important, the level of effort in this area can at times far exceed what is actually required, often due to the natural passion so often associated with invention, as well as this area being at the core of how many businesses were founded. Couple this with attention grabbers such as personalities, politics, and other people related issues and the risk of distraction from what really matters can soar.

When business leaders spend too much time focusing on the company and don’t pay enough attention to the external marketplace, they run the very real risk of the business veering off course and becoming out of step with the needs and expectations of customers. In addition, less attention is paid to competitive and other market developments, which can result in displacement of position, as well as a decreasing relevance to customers. And make no mistake, this can happen quickly!

Learning how to take a balanced perspective, including both internal and external viewpoints, takes practice and can be a significant shift from that of less senior roles, where the focus is typically more internal. Here’s how to start developing the ability to have a greater external focus:

Understand the meaning of “industry”. An industry is a segment of the economy, where a company operates in its broadest sense, and is typically considered on a global or continental level. Although some might ask “how does what’s going on half-way around the world impact my business?”, it actually does, particularly in terms of consumer and technological trends and developments. Learn about the industry in which your company operates and monitor developments on a regular basis.
Understand the meaning of “market”. The market is the next level down from the industry, and often encompasses the area within which a company operates on a national or regional basis. Closer to home, developments are very relevant, particularly in terms of competitors and customer preferences. Within markets, companies can chart an expansion strategy. Consider this in the context of your business.
Articulate the target market. The target market includes potential and current customers, and businesses need to have a strong understanding of developments and attitudes towards the company. Know who your target market is, the potential for growth, and the level of satisfaction with your company’s products and services.
Stay connected with customers. Finding ways to connect with customers on a regular basis is a great way to integrate an external focus into your role. Customer service calls, surveys, appreciation events, and seminars/training can be great ways to interact, receive feedback, and “be seen”. Make a conscious effort to be active within your company’s customer base.
Get involved on an external level. Taking an active role in industry or community associations, participating in events, and networking help to keep the level of internal focus in check and provide a different perspective. Seek out these opportunities and choose wisely.

Over time, it’s not uncommon to notice a shift in terms of how time is spent and the increased external perspective that is generated. A balanced approach is powerful, so make a real effort to “look out the window” every day.

in Business & Strategic Planning / Career / Leadership 0 comments

May 20, 2014 by Jenifer Bartman

The Succession Conundrum: Business leaders, the weak link to successors, and the companies who try to finance them (Part 1)

Published by the Canadian Venture Capital Association in Private Capital

Business succession planning is tricky; part old, part new, part money, part emotion; it’s no wonder that so many business leaders put it off. The reality is that an abundance of Canada’s small to medium sized businesses (more than half, according to a survey conducted by the Canadian Federation of Independent Business) don’t have a succession plan at all. Since companies in this category are responsible for generating approximately one half of the Canadian economy, there is undoubtedly cause for concern.

Consider some of the key survey findings (1):

51% of business leaders surveyed indicated that they don’t have a business succession plan. Of the 49% that have a plan, only 9% have a formal, written plan
Approximately 48% of business leaders plan to exit their company within the next five years
48% plan to exit their business by selling to buyers unrelated to their family, while approximately 37% plan to sell or transfer the business to family members
The top barriers to succession planning include finding a buyer/suitable successor (56%), valuing the business (54%), and securing financing for the successor (48%)

Those who have even a moderate interest in the issue of business succession likely realize that various surveys and sources of information have yielded similar results. Delving beneath the surface, however, reveals interesting implications for business leaders, their potential successors, and those who seek to finance the transition, some of which should be sufficient to kick-start those seeking an exit anytime soon into action.

The Business Leader Perspective

Since over 85% of business leaders surveyed identified retirement as their reason for exit, it stands to reason that many have invested a considerable amount of time and effort into building their company. As a result, a transfer of ownership represents the primary opportunity to monetize value that has appreciated over what could be a lengthy period of time. Although this increase might be significant as compared to that of inception, business leaders are often dissatisfied with the offers they receive, which reinforces the need for thorough, early, and practical succession planning to maximize value wherever possible.

What’s even more compelling is how dependent a business leader’s ability to cash out at what they consider to be an acceptable value actually is upon the ability to identify a potential successor who has the: (i) skills to lead the business; (ii) interest in doing so; and (iii) ability to secure financing. This is a tall order, since many successor candidates might only meet one or two of these requirements. Couple this with a lack of experience in terms of developing a business plan to take a company forward in a manner that provides the necessary level of comfort to secure enough financing to close the deal. In the absence of third party financing, business leaders are left with the gamble of whether or not the company, under new leadership, will be able to generate a sufficient amount of cash over time to pay what could be a significant portion of the proceeds related to the transfer of ownership, a scenario that doesn’t end well far too often.

The Opportunity

Business leaders and those in the financing field both have a vested interest in terms of how Canada’s succession planning future plays out; the former wants to cash out and the latter wants to roll cash back in. In order to avoid a time-consuming stalemate in a situation where time is of the essence, an opportunity exists to help potential successors become real successors, by providing the tools to take companies forward; the right skills, plan, and leadership ability (and a bit of extra effort to help get the deal past the goal line wouldn’t hurt!). Here’s how:

Business leader skills. Many potential successors have played a second tier role in their careers, without having had the opportunity to ascend to the CEO level. Since the top job can be quite different from what has been the experience thus far, potential successors need a transfer of knowledge, mentoring, and practice in abundance, prior to formally assuming the CEO role.

Existing business leaders can help by creating professional development plans, delegating areas of responsibility in a meaningful way, and taking the time to provide practical mentorship. Potential successors often complain that leaders don’t take the time to provide meaningful coaching; sadly, this is too often the case. Doing so can be the difference between a well prepared leader and one who stumbles out of the gate.

Investor ready business planning. Many potential successors don’t have experience with developing a business plan that is sufficient to secure financing, let alone the process of raising capital. Business leaders who have lost interest in the company, not stepped up internal planning and control processes, or haven’t had the need to seek financing for long periods of time don’t help the process, resulting in a lack of information and competitive positioning to develop a compelling business plan.

Business leaders can make sound business planning a reality by ensuring that the right systems and information are in place within the company to support successors in putting together a plan that can be financed. Making the effort to critique existing business models, consider new markets, and understand important industry developments can help to identify opportunities for the company well into the future, all of which bodes well with financial partners, and, in turn, benefits those who are seeking to exit.

Leadership ability. Those who have spent years at the helm of a company understand the importance of leadership skills, particularly in terms of the impact to the business as a whole. Being a good manager doesn’t ensure that a company will be well led, a reality that is too often overlooked when passing the torch.

Recognizing the value of practical leadership development programs and forums and encouraging involvement can help to groom the business leaders of tomorrow. Starting well in advance and providing practical opportunities to put learning into practice are not only a powerful combination for success, this approach can also identify situations where an individual is not a good fit for a leadership role. Business leaders that do not encourage this type of development are effectively “boxing themselves in”, in terms of viable succession options.

Facilitating the exit. Financial partners can work with companies approaching (or well past) the need for succession by bringing options to the table, in terms of acquisitions, mergers, successor candidates, and other types of transactions. In the case where financial partners identify “to do” items to improve a company or go-forward plan to the point where a succession transaction could be financed, facilitating the introduction to advisors who can help makes all the difference, as the complexities of the succession and financing processes make it difficult for business leaders and potential successors to identify the right advisory resources.

The reality is that business leaders have to “help potential successors to help them”; the same is true for financial partners. In the absence of this approach, it might be difficult to affect a successful transfer of ownership in many cases. Seasoned business leaders know that a big part of their role is to create an environment that will make those around them successful; addressing the issue of succession really isn’t any different, in this regard.

Where does this leave potential successors? This topic will be considered in the next installment of The Succession Conundrum.

Source:

(1) Passing on the Business to the Next Generation, Canadian Federation of Independent Business, 2012

in Business & Strategic Planning / Financing / Leadership / Succession Planning 0 comments

October 15, 2012 by Jenifer Bartman

Does your CEO Successor have the Right Stuff? Avoid these 5 candidate types when selecting a potential successor

Published by Divestopedia

For many reasons, business leaders can find themselves at a loss when trying to identify a potential successor. Part of this could be due to the founder having started the business many years ago and building the leadership role around himself. Similarly, a particular business can be so synonymous with its founder, that it’s difficult to imagine anyone else actually taking the company forward. Sounds typical, right?

What does this mean in practical terms, when a business leader is in the process of seeking a potential successor to assume their role? Financial and transactional issues aside, ensuring that potential leadership candidates are truly CEO material is a key issue; one that often gets clouded by other matters, leaving the business leader in a state of confusion. Combine this with probably not allowing sufficient time to undertake the succession planning process and watch the desperation begin to appear. Suddenly, potential successors start to look a lot more ideal than they actually are.

Here’s the reality of the leadership role: CEO’s require the ability to oversee a company across all functional areas, including administration, sales and marketing, finance, products and services, as well as liaising with various external parties, such as financial partners, customers, and regulators. As a result, a CEO is not typically on the “front line” of delivering services; rather, they reside a level or two above the action so that they have the right sightline to oversee all key areas and resources.

So, if you’re not sure who your successor should be, start off by understanding who the next CEO shouldn’t be. The following types of candidates typically don’t represent a good choice:

Can’t let go of the detail—some people work at their best on the front line, analyzing information, understanding detailed problems, and perhaps working directly with customers. Their focus is narrow (i.e., departmental, as opposed to organizational), and they might even regard tasks that fall outside of their direct area of focus as an interruption or annoyance.

Although they often excel in their current role, these people, by their very definition, typically don’t make good CEO’s. The reality is they lack the skills or interest to oversee a company across various functional areas and are at their best when working in a specialized area, such as product development, sales, or technology. Lots of businesses make the mistake of promoting this type of person to a broader, more senior role than they can handle, when they probably should have been left in their current position.

Winner by popularity alone—taking the approach that being a CEO is all about being popular and liked might be more common than expected. The reality is, CEO’s often have to make tough decisions that won’t be popular, but are in the best interest of the company. Selecting a successor because “he’s a great guy” or “people will like her” isn’t a good approach. What a potential successor can bring to the role is what really matters, so don’t get caught up in polls and popularity contests.

Winner by family alone—family businesses bring an added layer of complexity to the succession planning process, and if the goal is to have the company survive for the long term, being a family member isn’t reason enough to be its next leader. Again, skills, experience, and what is in the best interest of the business should prevail, unless you want to be one of those companies that doesn’t last for generations.

Thinks the product is the business—although products and services are an important component of any company, they do not represent the whole company. In the absence of cash in the bank, the ability to invoice and receive payments from customers, a qualified sales force, reliable distribution, and sound operating systems, the product or service alone, in relative terms, isn’t worth much. Good successor candidates understand how a company as a whole operates and all of the pieces that are needed to operate a business, as opposed to just focusing on products and services.

Doesn’t have a long term focus—leading a company requires the ability to see not only where you are, but also where you are going. Real growth typically doesn’t happen in the short term, and with business cycles fluctuating over time, a good CEO needs to have the patience and ability to ride it out and take the company forward. Potential successors that are not able to do this typically lack the long term commitment and stability that are required in the CEO role.

Surprised by this list? The reality is that many business leaders don’t think about succession from this perspective; it’s more about “who do I know?” or “who is the best fit from what we currently have?”. Instead, it’s best to take a more strategic approach and seek out candidates who really have the right stuff to thrive in the CEO role, now and well into the future.

in Business & Strategic Planning / Leadership / Succession Planning 0 comments

September 1, 2011 by Jenifer Bartman

Go Big or Go Home: What does it take to build a great company?

Published by the Canadian Venture Capital Association in Private Capital

If early stage companies know little about the expectations of venture capitalists (see Bridging the Gap, Spring 2011 edition of Private Capital), they probably know even less about the working relationship between the two parties post-investment. While VC’s might see the next steps as obvious (“let’s go and build a great company!”), early stage companies may be exhausted and overwhelmed from the due diligence and closing process and may simply be wishing for things to return to normal; but will their world ever be “normal” again? Most VC’s certainly hope not.

If the devil is in the details, the challenge is in the goal: taking a largely unproven, early stage business and building it into a great company. To a VC, this means the elusive “big win”; the company that grows from mere obscurity to sales of $50 million, $75 million, or more. Beyond the cash that is generated, these winning companies are leaders in their markets, innovators in their industry, and perhaps, most importantly, they share in this powerful vision of top tier growth. They too want to build a great company, and will take whatever assistance and valuable insight they can find in order to get there.

If a journey begins with a single step, where do you start? Surprisingly, there may not be a lot of magic in terms of starting the relationship with a new portfolio company off on the right path. As with the preparation for raising early stage capital, the fundamentals also matter when building a business. Although strategy is important, what can be even more critical is successful implementation (i.e., getting it done!), while being in tune with the industry and market to know when to shift gears and make the necessary changes.

Investee companies need to take the necessary steps to build the business to support future growth, and not get caught up in the status quo. And while distractions often arise, it is critical to focus on the fundamentals and the ultimate goal, a discipline that can be difficult for young companies.

As part of this process, a number of key areas require careful and consistent attention, including:

Fundamental Area	Critical Success Factors
Aligned Objectives	Management buy-in to the short term and long term objectives, as well as the exit strategy. Willingness to use experienced resources/advice to grow the company. Consistent focus on what is in the best interest of the business
Product	Focus on sustainable competitive advantage. Strong understanding of industry and market developments to guide future product development efforts. Ability to deliver new products and product enhancements on a timely basis
Market	Demonstrated ability to reach and penetrate target market(s) through an appropriate strategy (i.e., pricing, advertising, promotion, distribution, etc.). Strong focus on competitive landscape and market developments, making necessary adjustments to grow market position
Management	Management team includes those with aligned objectives, the right skills and expertise, and strong implementation skills. Problem areas are addressed on a timely basis
Financial Results & Capital Requirements	Timely and accurate financial information that is used to track progress and make adjustments where needed. Established short term budgets and long term financial targets, as well as the necessary capital to achieve results
Exit Strategy	Well developed strategy, including estimated timeline, key milestones, and exit approach. Should consider market and industry trends and outlook

Given the importance of building the business to support future growth, management may lack the experience to do so, but can gain valuable assistance from the expertise that VC’s bring to the table. In order to raise the likelihood of success: (i) management needs to be receptive of this type of assistance; and (ii) VC’s need to take an active role in providing it. Although it is a given that VC’s don’t run companies, this process can mean that early stage investors might have to roll up their sleeves more than they would like, particularly when difficulties arise. Failing to do so could result in a company that never really reaches its potential, falling well short of “great”.

Beyond providing assistance with the fundamentals, important problem areas for VC’s to play an active role in resolving include the following types of situations:

When the founder flounders Just because a CEO has what it takes to start a business and manage it in the early days does not mean that they have the skillset and desire to build a company. It’s been said that many high growth companies have at least three CEO’s during the course of their history: one to start the business, one to grow the business, and one to position the company for exit. All of these situations have a different focus and require different skillsets. Chances are that all of these skillsets do not reside within a single CEO, so a change in leadership as part of the strategy should not be surprising. It can, in fact, represent an opportunity to drive growth in each stage of development.

Where the issue can become really problematic, however, is with a CEO who is truly out of their element. This situation can be typical with early stage companies, where: (i) one of the founders was arbitrarily put in the CEO position, but clearly lacks the necessary skillset; or (ii) the investee company hired the best CEO they could afford, on a very limited or part time budget, and got what they paid for.

In any event, VC’s need to recognize situations where the “CEO has to go” and take swift action. Weaknesses at the top normally don’t turn around, and sub-par performance results in opportunity that is forever lost. Although CEO recruitment is often a time consuming process, leadership is beyond important and maintaining a poor CEO and hoping for improvement does not represent a strategy for resolving the problem or for generating solid financial results.

When financial management gets no respect Many young companies underestimate the importance of the finance function, including the critical nature of timely financial information as a management tool, as well as in terms of attracting capital. Companies with a significant technical or intellectual property component, in particular, tend to put the majority of their resources into technology or product related areas, while downplaying the need to hire a qualified Controller or CFO.

It is often up to the VC to drive change in this area, as they truly recognize just how much a good CFO can do for a company, especially when there is more capital to raise. VC’s need to ensure that companies build a finance function that can support future growth and create the necessary level of confidence to attract future investors. The bottom line is that sound financial management is always critical, and you simply won’t build a great company without the right resources and systems in the finance function.

When the culture isn’t a learning one Building an early stage business can be an isolating process and the founders and their team can become overly focused on internal activities. Growing a business requires a more balanced approach, with sufficient focus being paid to customers, competitors, and market developments, as well as to internal matters. CEO’s who tend to rest on their laurels and what they already know, without upping the knowledge ante, can be a problem, as well as a sure fire way to get stuck in the status quo. Successful businesses are always learning, from the CEO’s office throughout the ranks, and building for growth requires new knowledge and skills.

VC’s can be an important catalyst in this regard, setting expectations for CEO’s to actively network and stress the importance of continuous learning throughout the company, as well as seeking out collaborative relationships, perhaps with other investees. VC’s have almost constant access to industry events and professional development opportunities crossing their desk, and taking a moment to invite portfolio companies along can help to set these important expectations and fuel growth.

When the company needs more help than a VC can provide Early stage companies often lack the experience to address issues that arise, while maintaining forward motion. This is often the case in “business as usual” situations, so imagine how much of a skill and knowledge shortfall could occur when building a company to support significant growth. Assisting an investee company in this area could become a full time job for a VC, and that’s just not workable for the long term, given that there is an entire portfolio to manage.

Hands on advisors can be a real help in this type of situation, and VC’s should play an active role in making it happen. Early stage companies may lack the experience to fully understand the type of resources they need to assist with a particular situation, and as a result, are often not well equipped to identify the type of assistance they require. VC’s, on the other hand, have typically seen the same situations many times, understand what is needed to support growth, and can be in the best position to diagnose the problem and suggest a handful of qualified advisors who can help; they just need to make the effort to do so.

Helping portfolio companies go from good to great is not just about the big moments; it’s also about paying careful attention to the fundamentals and taking timely corrective action when needed. Setting expectations of disciplined implementation, seeking out the right resources for assistance when needed, and not tolerating sub-par performance can help to make the most of investment opportunities. It could be the difference between a breakout company and those that just plod along.

in Business & Strategic Planning / Early Stage Financing / Entrepreneurs / Financing / Venture Capital 0 comments