Posts Tagged ‘exitrak’

Keys to a successful Strategic Planning Process

by Steve Popell on January 5, 2011

The time-tested strategic planning process includes the following elements.

  • Vision (3-5 years)
  • Mission (3-5 years)
  • Long-Range Goals (3-5 years)
  • Short-Term Objectives (next 12 months)
  • Task Assignments (to accomplish the Short-Term Objectives)
  • Action Items (What do we do Tuesday?)
  • Follow-up (to compare actual performance with plan)

Some give short shrift to the Vision and Mission as “touchy-feely” and somehow remote from daily operations.  This is a mistake.  In fact, developing a clear Vision and Mission, and communicating the same to all employees, can play a critical role in the company’s future success.

The Vision

Any worthwhile strategic planning process must begin with your Vision for the company at some specific date in the future.  What will be your company’s identity?  When customers, suppliers or professionals hear your company’s name, what image do you want them to conjure up?  What overriding quality do you want front of mind?  In other words: Who is this company?  Here are a few examples of vision statements that speak to this identity question.  Note that none of these statements says anything specific about what the company does for a living or about the customer base.

  1. We make the defense of the U.S. homeland stronger and more flexible.
  2. We help our clients’ teams to function more cohesively and effectively.
  3. We improve the quality of health care in America.
  4. We make transit passengers safer.

When your employees fully understand (intellectually and viscerally) your company’s Vision, they will be able to see how optimum performance in their individual jobs will contribute to the fulfillment of that vision.  This connection is critical for long-term job satisfaction, high achievement and career track progress.

When an outsider sees and understands the Vision, the first question that comes to mind is “How do they do that?”  This is where the Mission comes in.

The Mission Statement

The Mission statement describes your company’s function in concrete terms.   Using the same examples, here is a group of Mission statements that address the question “What does this company do, and for whom?”

  1. We train dogs to assist Customs inspectors to locate drugs and explosives.
  2. We deliver workshops to privately held companies on verbal and written communication, listening skills and teamwork.
  3. We make timely delivery of top-quality components to medical instrumentation OEMs.
  4. We manufacture shatter-proof glass for public transit vehicles.

Marrying the Vision and Mission statements is essential, because it helps to get across to your employees how truly important each of their jobs is in the grand scheme of things.  For example, these dog trainers are obviously in support of the drug and explosive interdiction business.  But, interdiction is a means, not an end.  The end is that we are all safer in this country.

In this example, you want your employee to make the connection that “If I do my job really well, I will be saving lives. I may never know the names or, even, the home towns of those I save, but they will be alive because of me/”  If your strategic planning group crafts meaningful Vision and Mission statements, you will create an environment in which this kind of connection will be a small step, not a leap.

Good luck!


PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

Neutral business valuation is typically part of any Collaborative divorce, and has a number of important advantages over each spouse hiring his or her own expert, including:

  1. Much less costly.
  2. Assuming the manager-spouse provides the necessary data on time, much faster.
  3. In a Collaborative divorce, the objective is to deliver an opinion on which the spouses can agree, understand, and believe is fair. Therefore, there is no need to “defend” the firm’s opinion from withering cross-examination.
  4. Instead of the ill feelings that inevitably flow from an adversarial valuation process, a neutral process can provide the basis for a more collaborative atmosphere for the resolution of other financial and, even, non-financial issues.  After all, if the couple can come to an agreement on a nettlesome problem like the value of the business, they should have a good shot at successfully negotiating other matters.

Effective Referrals

Relative unfamiliarity with the specific business in question, and with financial matters in general, will typically cause the non-manager spouse to fear that s/he is severely disadvantaged.  The manager-spouse, on the other hand, often believes that the non-manager spouse views the business as some kind of money tree.  “On the contrary,” s/he thinks, “without me, the business is worth nothing.”  It is critical that a competent and trusted business valuation professional keeps the burner under this volatile emotional stew on Low.

The referring professional, such as an attorney, should ensure that the individual s/he selects has the following qualities.

  1. A reputation for honesty, integrity and impartiality, including in court, where the line between expert and advocate is so easily crossed.
  2. Experience in neutral business and professional firm valuation, especially in the context of family law.
  3. A keen understanding of, and feel for, the human relations aspects of divorce in general, and business value negotiation in particular.
  4. A commitment to the Collaborative divorce process, as evidenced by training, group membership and active participation in fostering the growth of Collaborative Practice in his or her community.

First Meeting

The first meeting can include respective counsel and/or the neutral Financial Specialist, but there is a cost associated with enlarging the meeting, and that is generally not necessary.  For both spouses to embark on a calm and productive valuation process, certain key elements must be established from the outset.

  1. The expert’s credentials (experience, expertise, publications, etc.) impart a sense of confidence in this individual’s technical competence.
  2. The manager-spouse must feel that “reality” will be front and center in this process – especially, that value will constitute what it is worth to the manager-spouse to own the community’s entire interest in the business (rather than his or her community property half) and not what it is worth to some hypothetical outside buyer.
  3. The non-manager spouse must believe that the valuation expert will control the flow of information and analysis.
  4. The expert is, in truth, totally impartial.  Making it clear from the outset that the expert will not be available to perform consulting assignments for the company down the line will go far to cement this critical impression.
  5. The process will be transparent and approachable to all concerned, including both spouses and all advisors.  If, at any time, either spouse wants the expert to look at an issue, talk to an individual and/or review a document, the expert should do so, irrespective of whether such an investigation promises to be productive.
  6. The parties must receive a firm fee quote, rather than a request to sign up for some open-ended hourly commitment.  Divorce is stressful enough without having to worry about how much the next coffee break is going to cost.
  7. Finally, the expert must confirm the impression that s/he has no ego in the game.  The best way to accomplish this is to have the report be “Preliminary” in nature.  If any party to the process can make a convincing case that revisiting any aspect of the valuation process could have a significant impact on the expert’s opinion, s/he should do so without objection or delay and, then, furnish a Final Report in due course.

Conclusion

Collaborative divorce is a splendid out-of-court process that can assist the spouses to communicate more effectively and to negotiate more productively.  If the parties make the necessary commitment to the process, they have a much better chance to maintain human decency, protect their children, and to help the entire family to get on the other side of the divorce decree in one piece.

It is well worth the effort.


This article has been contributed by Steven D. Popell CMC (Certified Management Consultant.) Steve has been qualified as a business valuation expert since 1974, and has published extensively on this topic. CMC, a certification mark awarded by the Institute of Management Consultants USA, represents evidence of the highest standards of consulting and adherence to the ethical canons of the profession. Steve was a 2007 winner Collaborative Practice California Eureka Award for contributions to Collaborative Practice in this state and is a Senior Partner in Popell & Forney, with offices in Los Altos Hills and Pleasant Hill, California.

Retaining key employees is extremely important for ongoing operations, and in building value for a potential sale of the company.  Stock options have historically played a key role in providing incentives for these individuals to stay.

In a previous post, we discussed the fact that IPOs and, with them, the attractiveness of stock options have taken a considerable hit in the past few years.  Not to worry.  A Stock Appreciation Rights (SAR) program can achieve many of the same purposes with few, if any, of the drawbacks of a stock option plan.  Here is what you need to know in order to have an intelligent and productive conversation with a professional who can help you to draft the implementing document for an SAR program.

The SAR Grant sets aside a specific number of SAR shares to be awarded to a named employee, including the timing and size of each award – both matters of management discretion.  Since SAR shares are awarded, rather than purchased, the employee does not tender any cash or incur any financial obligation to the company.

The Base Share Value (the value of the SAR shares at the time of the award) is also specified by management.  The key in determining the basis for this value is management’s definition of success.  Pretax profit as of the end of the most recent calendar or fiscal year would be a good example.  If earnings increase over time, all employees holding SAR shares will benefit as the value of those shares increases.

While there are advantages in having the same basis for valuing the SAR shares of all employees (such as increasing the chances of cooperation among potentially competing individuals or departments) other factors may have greater weight.  For example, if one group of employees has considerable influence over Gross Profit, while another has its principal impact in control of overhead, separate bases for valuing SAR shares may be more effective in fostering the kinds of behavior that management seeks.

Along with the SAR share award schedule, there is usually a vesting schedule.  These two elements combine to prolong the period in which all SAR shares are fully vested and, therefore, receive full value at sale.  If, for example, 25% of the shares are awarded each year for four years, and there is a four-year vesting schedule, it will take seven years for all shares to be fully vested.

When the employee leaves the company, his or her shares are purchased by the company at the then value (or the value at the end of the most recent calendar or fiscal year.)  The calculation is a simple one:

Cash to the employee = the Current Share Value minus the Base Share Value X the number of fully vested shares owned by that employee.

Non-vested shares have no value, and are purchased for zero dollars.  If the company is sold, all SAR shares will typically vest immediately.

The principal disadvantage of an SAR program is that it provides little in the way of immediate reward.  That shortcoming can be remedied by an effective bonus program.  The next post will discuss this important topic.

Good luck!


PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

Increase the value of your company

by Steve Popell on August 9, 2010

This post is about the Role of Stock Appreciation Rights in retaining key employees; which goes a long way in increasing the value of your company. One of the least understood, but most valuable, strategic assets of any privately held company planning to sell is the quality of management, including its breadth and depth.

Put yourself in the position of the buyer.  Would you pay a lot for a company the executive corps of which consists of the founder/CEO and a cast of minor characters?  Of course you wouldn’t, and for one very sound reason.  If something were to happen to that individual (illness, injury, death or, simply, loss of motivation) your return on investment would be in serious jeopardy.  So, you would reduce your risk by reducing the price.

Therefore, it is critically important that ownership find effective ways to retain key employees.

Fewer Practical Options (Pun Intended)

Financial incentives have always played a key role.  However, because IPOs are much harder to come by in today’s market, one of the traditional favorites (stock options) has lost much of its appeal.  Not to worry.  Riding to the rescue is a great alternative: Stock Appreciation Rights or SARs.  This vehicle conveys no equity ownership.  Instead, the employee shares in the financial success of the company through what amounts to cumulative deferred income, with a vesting schedule that can take nine years or longer to play out.

Advantages and Disadvantages

There are several distinct advantages of SARs over traditional stock options, including:

  1. The value of the SAR shares is directly related to critical measures of company success, such as Pretax or After-Tax Profit, or Net Worth.
  2. The bases for the (hopefully increasing) value of the SAR shares are strictly a matter of management discretion.
  3. There are none of the nettlesome issues associated with employee equity ownership, such as membership on the Board of Directors.
  4. All SAR shareholders have a common goal, which encourages cooperation among sometimes competitive individuals and/or departments.
  5. The vesting schedule provides a powerful incentive to stay with the company – the whole point.
  6. When the company repurchases vested shares, these payments are fully deductible.

The principal disadvantage is common to stock options; namely, inadequate short-term incentives.  This problem can be very effectively addressed with cash bonuses.

The next post will discuss the logistics of setting up and managing an effective SAR program, as well as how to structure a cash bonus program that it actually benefits the company, and not just the employees.

Make it a great month!

PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

There are two very different reasons why effective long-range planning is critical for getting top dollar when you sell your company.  First, top-notch planning helps you to manage your company better and involve your employees at a higher and more productive level.  Second, and much less obvious, success in this area is very impressive to prospective buyers.  Why?

Because successful long-range planning (defined as developing a plan, implementing it and achieving most or all of the long-range goals) is indicative of solid and sophisticated management – a highly valuable strategic asset for most acquiring companies.  Here are 10 elements to developing a long-range plan that increases the likelihood of success manifolds:

  1. Involve your key people.  For one thing, they will have ideas that are worth considering.  Beyond that, it is axiomatic that the best way to overcome resistance to change is to ensure that those who will be implementing the changes help to determine what those changes will be.  An effective planning group can comprise as few as three people, or as many as 15.  The important thing is that no one who can have a major impact on how the plan is implemented is left out.
  2. Make sure that there is a solid consensus around the vision for the company; i.e. what will be the company’s identity in years to come.
  3. Develop a clear and easily communicated mission statement that expresses what the company does and for whom.
  4. Conduct a SWOT analysis; i.e. identify the company’s principal Strengths, Weaknesses, Opportunities and Threats.
  5. Develop long-range goals that are challenging, achievable and in line with the company’s vision, mission and values.  These goals should be specifically designed to take advantage of strengths and opportunities, while addressing (or, at least, minimizing the negative effect of weaknesses and threats.  In addition, ensure that each member of the planning group (and the rest of the staff, as well) can relate the achievement of the company’s vision and mission to a high level of performance in their specific area(s) of responsibility.
  6. Identify outside factors over which you have no control and little, if any, influence.
  7. Short term objectives. Determine what you need to achieve within one year in order to give yourself a leg up in achieving your long-range goals.  But, be cautious with your scheduling.  The biggest mistake most owner-managers make is front loading implementation far too much.  If you are going to make a mistake, especially if this your first planning experience, make it on the low side of delivery.  You can always add short-term objectives later, but if you fail to achieve your objectives, it can severely damage morale.
  8. Attach task assignments, with individual responsibilities and deadlines, to each short-term objective.
  9. Attach action items to each task assignment.
  10. Organize follow-up sessions no more often than monthly and no less often than quarterly.  This step is, in reality, as important as all the rest, because it is all that stands between you and a dusty planning document that fails to impact the future of your company.  Make sure that you are utterly ruthless in comparing actual performance with plan.  There is no reason to be unpleasant.  Most long-range plans fall behind in the early stages, usually because of excessive front loading.  The critical element is that everyone agrees on the relationship between plan and actual performance, and how to get back on track and timeline with any projects that are lagging

Oh, and one final thing… Good luck!


PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

Business Valuation in divorce is different

by Steve Popell on April 15, 2010

In most business valuations, the standard is “fair market value.”  This method seeks to determine what a hypothetical “willing buyer” would pay a hypothetical “willing seller” in a hypothetical “free market” in which both buyer and seller are in possession of all material facts and neither is forced to make a deal.

In a divorce, however, the buyer and seller are known.  Typically, the manager-spouse “purchases” the community property interest of the non-manager-spouse through the process of community property division.  The standard of value in this case should be “investment value,” because it reflects what it is worth to the manager-spouse to own all of the community’s interest in the company, rather than just his or her community property half.

As with a fair market valuation, an investment value process analyzes a number of elements that are recognized by the appraisal community to be of particular relevance in valuing any privately held company.  Internal Revenue Ruling 59-60 lists the following:

  • Nature and history of the business
  • General economic outlook, and specific prospects for the industry
  • Net worth and financial condition
  • Earning capacity
  • Dividend paying capacity
  • Extent of goodwill, if any
  • Size of the block of stock being valued, especially if it represents a majority or minority interest
  • Whether the stock in question is voting or non-voting
  • Stock prices of comparable public companies, if any
  • Sale(s) of company stock at or near the valuation data
  • Limitations or restrictions on the stock, such as on transfer, dividends, etc.
  • Sale(s) of stock in comparable closely-held companies, if any (implied)

Of these, the two most important are earning capacity and financial condition.

When a company or individual acquires, or invests in, a business of any kind, the main reason is almost always the expectation of a return on that investment.  ROI comes from future earnings.  Sometimes, these earnings are presented as the bottom line on the Profit & Loss statement.  In other cases, the calculation may reflect cash flow.  But, the principle is identical.  Future operating performance determines the return on investment and, therefore, future earning capacity is a key factor in determining value.

Financial condition is also extremely important for a number of reasons.  {Note: a future post will discuss in detail practical financial analysis for a privately held company.}

  1. A strong balance sheet allows management to pursue opportunities for growth, either self-funded or with outside debt.
  2. Banks require the maintenance of specific financial numbers (such as Working Capital and Net Worth) and ratios (such as Current Ratio and Quick Ratio) to maintain an existing line of credit.  In today’s economy, most banks are far more rigid regarding these standards than they were previously.
  3. Regardless of the prospects for earnings growth, most companies experience occasional “bumps in the road” on the P&L.  A strong financial condition will allow the business to weather these times.  The company that has been paying last quarter’s Accounts Payable with the collection of next quarter’s Accounts Receivable has no margin for error.  The loss of a major customer or receivable can put such a company in serious financial jeopardy.

If the business being valued in a divorce is a sole practitioner professional firm, the Excess Earnings Method will often be the most appropriate.  Here, the difference between the practitioner’s earnings (salary + benefits + pre-tax profit) and “reasonable compensation” (what s/he could earn in the same position as a non-owner / non-partner employee of a comparable firm) is called “excess earnings.”  {See previous post on Reasonable Compensation.}

Excess Earnings times a multiple (reflecting the level of confidence that these excess earnings will continue in the future) equals “Goodwill”.  Goodwill plus Net Worth (minus a reasonable return on Net Worth) equals value in the Excess Earnings Method.

In most valuations, in or out of court, the expert will deliver an opinion on a specific value.  In the context of divorce, however, it is far preferable to provide an initial range of value for two important reasons:

  1. It is much easier for the spouses to agree on a range of value than on a specific dollar amount.  Once they have done that, settling on a final number becomes a much more manageable task.
  2. Often, the value of the business can be juxtaposed against, and negotiated against, spousal support.

For example, if the spouse to be supported is mid-30s with a high paying job, s/he may be keenly interested in a substantial buy-out that can be used as an investment or retirement vehicle.  Contrariwise, consider the individual in late 50s with little income history or prospects, who has been living a very comfortable lifestyle (probably supported by the business.)  This person may be far more concerned with maintaining that lifestyle (e.g. keeping the children in the same school district) and would be willing to give a little in the value of the business to achieve this objective.  A range of value assists the couple to carve out this kind of win-win.

Another important contribution that the valuation expert can make to this difficult and highly emotional process is to produce a preliminary report that is open to criticism.  If either spouse can make a persuasive case that the expert has erred in some aspect of the valuation process, and that revisiting the issue(s) could have a significant impact on the expert’s opinion, s/he should be quite open to doing that.  The only objective here is the welfare of the clients, and pride of authorship has no place.

In the final analysis, the expert’s role is to assist the divorcing couple to agree on a value for the business that they understand and believe is fair.  If the expert is able to accomplish this goal, s/he will have made an important contribution to the family and, most importantly, to any children in that family.


This article has been contributed by Steven D. Popell CMC (Certified Management Consultant.) Steve has been qualified as a business valuation expert since 1974, and has published extensively on this topic. CMC, a certification mark awarded by the Institute of Management Consultants USA, represents evidence of the highest standards of consulting and adherence to the ethical canons of the profession. Steve was a 2007 winner Collaborative Practice California Eureka Award for contributions to Collaborative Practice in this state and is a Senior Partner in Popell & Forney, with offices in Los Altos Hills and Pleasant Hill, California.

Looking to sell your company? Don’t be in a hurry…

by Steve Popell on March 18, 2010

The merger & acquisition market has gone quiet. If your instincts are telling you to wait a while before trying to sell your company, give yourself a nice round of applause.  Your instincts are right on the money – pun intended, sorry.

Here is a list of 5 solid reasons for keeping your powder dry for three or four years.

  1. Buyers themselves are generally not doing particularly well.  Therefore, they will have less money to spend, and will be more risk averse.  Both factors drive lower offers.
  2. Your earnings are probably not especially robust.  How could they be in this kind of economy?  Projections of future profitability are all fine and good, but they have considerably less credibility in today’s market.  Even if the buyer believes your forecasts, why should s/he have the same truly reflect in the offer?  Better to negotiate from a position of relative strength.
  3. Companies that come out on the other side of this economic situation in one piece will find that many of their competitors will have disappeared. That means that you will have fewer rivals for the buyers’ attention and acquisition dollars once we are done with the recession… or better, when the recession is done with us!
  4. Every seller wants to differentiate his or her company from all the others in the industry.  If you have used this time to transform your company into a prime strategic acquisition candidate, it may be the #1 choice for buyers seeking acquisitions in your industry.
  5. This position as the “only game in town” (or close to it) could allow your broker to conduct an “auction” among a number of highly desirable buyers. This puts you in control of the acquisition process, and can yield enormous financial rewards.

What you need is a process that is designed to help your company to become a highly attractive strategic acquisition candidate by delivering to you the picture of this candidate as painted by people who really know – key acquisition executives in prospective buyers. What comes next is fascinating

You decide which strategic assets to acquire and/or enhance in order to get your company’s strategic profile as close as possible to what the market has identified as ideal. Like most strategic decisions, these will turn on four key elements of your business environment.

1. Money
2. People
3. Time
4. The fit with your company’s vision, mission and core values

You should begin this process at least two years before you intend to put your company on the market. Three years is preferable. Why?  Because development of solid strategic assets takes a minimum of two years and, often, longer.

Once you have made these decisions, it is time to incorporate them into a strategic plan that also includes provisions for enhancing your earnings growth and financial condition.  The standard plan, including Vision, Mission, Long-Range Goals, Short-Term Objectives, Task Assignments, Action Items gets the job done.  You should involve all personnel who will play a key role in implementing the plan.

Conduct periodic comparisons of plan and action (no less often than quarterly.) Such follow-up is critical to ensure that you maintain momentum.  The strategic plan is a living document that must remain front of mind.  Otherwise, it will gather dust, and you will have wasted a great deal of time and effort.

Go for it!

PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

strategic planningIn a recent post discussing how to build your company into an attractive strategic candidate with a process known as ExiTrak®, we advised the following.

  1. Have a trusted advisor interview key acquisition executives in 15-25 prospective buyer companies.
  2. From these responses, put together the profile of the attractive strategic acquisition candidate from the perspective of the buying marketplace.
  3. Conduct a “gap analysis” comparing the marketplace profile with the strategic profile of your company.
  4. Based on this analysis, make decisions regarding which strategic assets to acquire and/or enhance in order to bring your company’s strategic profile as close as possible to that of the marketplace.
  5. Create a strategic plan to implement these decisions in the context of improving operational performance.

This blog will review in detail the strategic planning process.

Overview

A solid strategic planning process will take the participants from the “10,000-foot level” to the place where “the rubber meets the road.”  {No more metaphors, I promise.}  The most critical element for a successful strategic plan is the extent to which everyone in the company can see a direct link between high performance in what they do every day and the long-term prosperity of the company.  Achieve this and “the world is your oyster.”  {Man, that promise had a shorter shelf life than the average New Year’s Resolution.}

Who Should Participate?

This is both a “who” and a “how many” question.  One of the best ways to overcome resistance to change is to have those who will be implementing the changes participate in determining what those changes will be.  Therefore, if possible, everyone who can have a significant impact on the achievement of the company’s Vision, Mission and Long-Term Goals should be part of the strategic planning process.

It is, nevertheless, well established that any working group begins to lose efficiency and effectiveness when it gets bigger than 17 participants.  Depending on the size and complexity of your company, an ideal strategic planning group size is 5-15.

How Long Should This Process Take?

Some professional facilitators recommend telescoping the entire process into a single weekend.  I think this is a mistake.  My recommendation is to conduct a series of three one-day meetings, spaced about one month apart.  After a couple of weeks, the facilitator should issue a preliminary report summarizing the results to date.  At that point, each individual will be able to review this report as a “reader” rather than as a “writer” – a key factor in objectivity – and be prepared to suggest changes, if appropriate, at the next meeting.

Selection of a Facilitator

Every strategic planning process needs a facilitator.  A highly effective facilitator must possess all of the following skill sets and personal qualities.

  • Highly knowledgeable about your business and industry
  • High self-esteem
  • Not easily intimidated by higher-ups in the organization or their opinions
  • Well organized
  • Excellent listener with first-class summary skills
  • Excellent at drawing out all participants, including the wallflowers
  • Articulate
  • Clear writer
  • Not the CEO

If you are the CEO, try to avoid revealing your position on various issues for as long as possible.  You will always have the power to pursue a particular course of action.  But, when you do, you want to be certain that you have had the benefit of the broadest set of opinions and options.

Key Elements of the Strategic Plan

The strategic planning process involves the following key elements:

  • Vision
  • Mission
  • Long-range Goals
  • Short-term Objectives
  • Task Assignments
  • Action Items
  • Follow-up to compare actual performance with plan

Vision

At least 3 Years in the Future

Often at End of Accounting Year (Calendar or Fiscal)

Any worthwhile strategic planning process must begin with the Vision for the company at some specific date in the future.  What will be the company’s identity?  When customers, suppliers or professionals hear the company’s name, what image do you want them to conjure up?  What overriding quality do you want front of mind?  In other words: Who is this company?  Here are a few examples of Vision statements that speak to this identity question.

  1. We make the defense of the U.S. homeland stronger and more flexible.
  2. We help our clients’ teams to function more cohesively and effectively.
  3. We improve the quality of health care in America.
  4. We make transit passengers safer.

When your employees fully understand (intellectually and viscerally) your company’s Vision, they will be able to see how the optimum performance of their individual jobs will contribute to the fulfillment of that Vision.  This connection is critical for long-term job satisfaction, high achievement and career track progress.

Mission (Same Date)

The Mission statement describes your company’s function in concrete terms.  Using the same examples, here is a group of Mission statements that address the question “What does this company do, and for whom?

  1. We train dogs to assist Customs inspectors to locate drugs and explosives.
  2. We deliver workshops to privately held companies on verbal and written communication, listening skills and teamwork.
  3. We make timely delivery of top-quality components to medical instrumentation OEMs.
  4. We manufacture shatter-proof glass for public transit vehicles.

Marrying the Vision and Mission statements is essential, because it helps to get across to your employees how truly important each of their jobs is in the grand scheme of things.  For example, these dog trainers are obviously in support of the drug and explosive interdiction business.  But, interdiction is a means, not an end.  The end is that we are all safer in this country.  In this example, you want your employee to make the connection that “If I do my job really well, I will be saving lives.

Long-Range Goals (Same Date)

The Long-Range Goals (LRGs) cover as wide a range as you and your group deem appropriate, including such categories as:

  • Sales
  • Gross Margins
  • Overhead structure
  • Pretax profit
  • Market share
  • Market niche(s)
  • Key new customers
  • Improved product quality
  • Improved delivery times
  • Customer satisfaction
  • Geographical outreach, including additional facilities
  • Breadth and depth of management company-wide
  • Technology
  • Technology management and infrastructure
  • Reducing employee turnover

These goals should be quite specific and measurable. For example, improved customer satisfaction could be measured by two distinctly different kinds of yardsticks.

  1. Reduction of customer turnover by 30% over three years.
  2. Improvement in customer survey numerical responses by 30% over the same period.

Both provide numerical measures, but surveys rely on subjective personal judgments.  Improved delivery times are much easier to measure than, say, product quality.  However, the latter can be measured by customer returns, customer complaints or other means.  This, of course, requires that you have a system to capture these data 100% of the time.  Whatever your system, ensure that your Long-Range Goals are inextricably linked to day-to-day performance.

Short-Term Objectives

To be Achieved Within 12 Months

The successful completion of your short-term objectives should provide some tangible improvement in company operations.  However, the primary strategic payoff will be a head start on achieving the Long-Range Goals.

If you are going to make a mistake, err on the low side of commitment, not the high side.  You can always add something later, but lack of achievement in one part of the strategic plan can cause problems elsewhere and, at the same time, create morale problems for the team.

Carrying on with the example of Improved Customer Satisfaction (and assuming that progress in each of the measured categories is linear) the Short-Term Objective for customer turnover and survey results could be 10% per year.  However, inertia may preclude linear progress.  As a result, 5%, 10% and 15% in years 1, 2 and 3 respectively may be more realistic. Try to ensure that your Short-Term Objectives are achievable, and give yourself and your team enough time to get the job done.

Task Assignments (Quarterly)

The achievement of quarterly task assignments will, by definition, achieve the Short-Term Objectives.  Each task assignment is the responsibility of one or two individuals, with a deadline and standard of performance.  For example, someone will have to design the system to collect data on customer turnover, including precisely what constitutes turnover.

Similarly, someone will have to design and implement the customer survey or find and supervise a source outside the company to perform one or both of these services.  Someone will also have to analyze the data and present it to management.  The best way to avoid front-loading this part of the process is to assign tasks only one quarter at a time.

Action Items

What Do We Do Tuesday?

Action Items fall out week by week or month by month from the Task Assignments.  Unlike Long-Term Goals and Short-Term Objectives, it is best to front-load the Action Items, because that is the best way to get the job done on time.

Monthly Follow-Up

Plan the work and work the plan.  Whether it’s an individual salesperson’s call plan for the next week or the company’s strategic plan for years to come, the principle is the same.  It doesn’t matter how great the plan is if implementation is poor, excessively late or both.  In this regard, follow-up to compare actual results with plan is invaluable.

There should be a two-hour morning follow-up session, no less often than monthly, that includes all members of the original planning team.  The purpose of each meeting is two-fold.

  1. Determine the status of all active projects in the strategic plan.
  2. If any project is in trouble, determine what can be done to right that particular ship.

The most critical factor is that the strategic planning group functions as a team, providing support for one another and directing help where and when necessary.  Good luck.


PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

strageic acquisition just askIn a recent post, we discussed the significant difference between the financial acquisition value and the strategic acquisition value of a privately held company.  Obviously, before you can convert your company into an attractive strategic acquisition candidate, you have to learn just what that means in your industry.  But, how can you do that?  You certainly can’t just walk up to a key acquisition executive and ask, can you?

Actually, with a few important modifications, that’s precisely what you can, and should, do!  Well, not you personally, because it will be important to keep your company unidentified.  Just have a trusted advisor conduct these interviews on your behalf.

Once you and your team have developed a list of likely buyers, design a questionnaire that will take no more than 15 minutes to complete on the telephone.  The questions you ask will largely depend on your industry and the data you want to gather on where these executives think the industry is headed.  However, two questions will be common to all questionnaires, irrespective of the size of your company or its industry.

  1. If you were to acquire a company in this industry today, which strategic assets would be most valuable to you?
  2. How are these preferences like to change over the next few years?

If your interviewer talks to enough acquisition executives (15-25 should do it) and compiles the responses, s/he will have put together the profile of the attractive strategic acquisition candidate from the perspective of the marketplace.  Next, conduct a “gap analysis” that compares this profile with the strategic profile of your company.  In other words, how does your company stack up on each strategic asset regarded by a number of interviewees as important?  In most cases, your individual strategic asset ratings will fall roughly into three categories.

  1. We are in very good shape, and need only fine tuning.
  2. We have made significant strides, but we have a long way to go.
  3. We are pretty close to the starting blocks.

Once you have made these judgments, you can decide which strategic assets to acquire and/or enhance in order to move your company’s strategic profile closer to what the marketplace has specified.  Consider these possible scenarios.

  1. Many interviewees indicate that they would be very interested in acquiring a leading regional company in your industry, but not a local one.  This would suggest that acquiring one or more companies in your industry or, perhaps, merging with a larger competitor elsewhere in your region, would make the equity in your company much more valuable.
  1. A number of executives indicate that some important product development opportunities are stalled because the components currently available in the market are technically inadequate.  One or more of these components is within your company’s technical expertise.  This information could affect your strategic product development effort in a very positive and targeted way.
  1. You have been planning to expand into a new market niche, and have narrowed the choices to three that appear to be roughly equally promising.  The interviews yield the information that one of these three would be considered very valuable to many prospective buyers.  Case closed.

Once you have made these decisions, you need only incorporate them into an effective strategic plan, complete with areas of individual responsibility, deadlines and standards of performance.  Good luck!

PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

Sell
If you are considering selling your company at some time in the future, the foremost question in your mind is probably: What price can I get? Much of the answer is bound up in your company’s P&L performance history and current financial condition. If it has been increasingly profitable over the years, and has a strong balance sheet, your company will be more valuable than one that has struggled. That much is obvious.

What is less well known is the impact of the kind of acquisition it is. By that, I don’t mean what formula was used to arrive at a value – often a multiple of revenue, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation and amortization (EBITDA) or net profit before or after taxes. Rather, it’s about whether the acquisition is put together based on financial value or strategic value. The potential difference in price can be very significant. Why? The answer is found in the relative return on investment.

Consider the following two Scenarios:

Scenario 1:

Say that Big Company A buys Small Company B and sets it up as a wholly owned subsidiary. Nothing else changes for either Buyer or Seller. In this “financial” acquisition, the entire return on investment to the buyer comes from the after-tax profit and cash flow that the seller continues to generate after the sale. Therefore, the price must be low to allow the buyer to get a reasonable return on investment.

Note that most industry “roll-ups” are structured in just this manner. What the buyer is trying to do is to acquire a number of successful local or regional companies in a particular industry on a financial basis and, then, sell or take public the larger, more diverse national powerhouse based on strategic value.

Scenario 2:

In this scenario, the seller brings valuable strategic assets to the table, such as geographical location and reach, a product line that is complementary to that of the buyer, one or more key customers, a strong position in a valuable market niche, technology and/or technology infrastructure, etc. In this new setting, both buyer and seller can generate increased revenues and earnings simply because they are together. This phenomenon used to be called “synergy” but whatever the name, the important point is that the return on investment to the buyer comes from the seller’s earnings (as before) plus the increased earnings that both now generate.

So, what can you do to take advantage of this opportunity to get a much higher price for your company? Happily, the answer is very straightforward. Take the management steps necessary to transform your company into an attractive strategic acquisition candidate. The way to do that is to find out which strategic assets are likely to have the most value in a future sale and, then, beef those up.

Future posts will discuss this topic in more detail. In the meantime, do an objective assessment of your company – both financially and in terms of its strategic profile. If you are rigorous and honest in this process, you will be well on your way to optimizing the eventual sale price for the company you have worked so hard to build.

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PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate