Posts Tagged ‘steve popell’

Week In Review – Jun 13 – Jun 19, 2010

by Magesh Tarala on June 20, 2010

Buyers for your company: How to build a great list?

by Steve Popell, Jun 14, 2010

In a previous post, Steve discussed the fact that becoming an attractive strategic acquisition candidate should begin with learning precisely what prospective buyers think that means, and how to elicit that information in a series of telephone interviews.  But, an equally important element is determining whom to interview.  This post addresses that question. more…

Leadership and Mythology #6: Panic and Self doubt

by Gary Monti, Jun 15, 2010

When you leave your comfort zone, even little things take on much bigger significance and cause you to doubt yourself. But once you become comfortable dealing with uncertainty, the rewards will be tremendous. Leaving your familiar confines is like being touched by the Greek god Pan. Leaders are characterize by their ability to stand up to Pan.  more…

Social Media and Tribers #2: DEATH of Email; RISE of branded Tribes

by Deepika Bajaj, Jun 16, 2010

A while back, email was an effective medium to market your products. But not anymore. Because of the rise of junk mail people don’t trust the emails they get. New web marketing is based on the foundation of TRUST with our tribe. In this post, Deepika gives a high level overview of how to go about building trust within your tribe. more…

Flexible Focus #6: Peace in the Elements

by William Reed, Jun 17, 2010

A great way to gain flexible focus is to study elements of words, their roots, nuances, and varieties of expression. This can be done in any language, but in Chinese and Japanese you have the additional dimension of written characters (kanji), not only the elements or radicals which make up the kanji, but the remarkable range of expression made possible in writing with a brush. more…

Author’s Journey #26: Speak your way to book publishing success

by Roger Parker, Jun 18, 2010

Speaking is one of the best ways you can promote your book while planning and writing it. It creates a special bond with your audience, paving the way for book sales and lasting relationships. In this segment, Roger encourages you to speak your way to book publishing success by speaking about your book at every opportunity. more…

Buyers for your company: How to build a great list?

by Steve Popell on June 14, 2010

In a previous post, we discussed the fact that becoming an attractive strategic acquisition candidate should begin with learning precisely what prospective buyers think that means, and how to elicit that information in a series of telephone interviews.  But, an equally important element is determining whom to interview.  This post will address that question.

The first, and most obvious, step in compiling a list of prospective buyers in your industry is simply to brainstorm with anyone who fits the following profile.

  1. Has a valid input on this topic
  2. Can be relied upon to keep totally confidential even the fact that there has been such a conversation.  The notion that your company is (or will soon be) for sale can be very destructive in the marketplace.

As long as you have complete confidence in the discretion of each individual, the more contributors the better.

The next step is to consult as many merger & acquisition databases as you can identify.  Database research can help in two distinct ways.  First, it can provide information on specific acquisitions.  Second, and as importantly, it can suggest matchups that might not have occurred to you and your colleagues.  Discussions that follow will often lead to whole new categories of prospective buyers.  The basis for this research is your company’s Standard Industrial Classification (SIC) code number, along with the parameters that are most relevant, such as:

  1. That the SIC code number relates to sellers;
  2. Period of investigation (e.g. last three years)
  3. Sellers’ annual revenue range
  4. Whether to include international buyers and/or sellers

When in doubt, do not leave out any parameter, or narrow it unduly.  It is far better to have too many data points than too few.  You can always drop any that prove to be irrelevant.

The rest of this part of the process is iterative; i.e. back and forth between brainstorming and database research, until you feel that you have reached the point of diminishing returns.   At that time, shift your attention to identifying a specific executive to interview in each company.  This information should be readily available on the prospective buyer’s website.

In a relatively small company, the CEO or CFO is the most likely choice.  In a larger company, there may be an individual specifically charged with acquisitions, such as the Director (or Manager) of Corporate Development.  Since the title will vary from company to company, it may be necessary to click on the name of someone you think may have this responsibility.  His or her write-up should be very helpful in this regard, and will probably provide contact information, as well.

Once you have developed the list of companies and individuals to contact, craft a questionnaire along the lines discussed in the previous post, conduct the interviews, collate the data and, finally, analyze the results.  The product of all this effort will be the profile of the attractive strategic acquisition candidate from the perspective of the marketplace.

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

Week In Review – Feb 14 – Feb 20, 2010

by Magesh Tarala on February 21, 2010

Are you feeling helpless?

by Vijay Peduru, Feb 15, 2010

Going through the same situation repeatedly, unable to control it, and accepting to suffer through it is called Learned Helplessness. Once you understand this important distinction, you can recognize the situation and take action to unlearn it. Vijay illustrates this with an example of an experiment conducted on dogs by Martin Seligson, a professor at the University of Pennsylvania and the author of several books including “Learned Optimism”. more…

Change Management #4 – People: Building a team with Dr. Jekyll and Mr. Hyde

by Gary Monti, Feb 16, 2010

Implementing change in an organization will bring out the Dr. Jekyll and Mr. Hyde personas of the team members. This is part of human nature and if you do not plan for this, you will face serious problems reaching your goals. Your leadership is what will help keep the project on track. Gary provides several tips to help you understand the risk and navigate the terrain. more…

Commitments Change Over Time

by Guy Ralfe, Feb 17, 2010

One of the fundamental requirements for increasing our power and value in the marketplace is our ability to make and keep promises and commitments. A promise or commitment is between two parties. And each of them is locked into their stories viewed through their eyes. Between the time a promise is made and it is fulfilled, situations will change for both parties. It is essential to maintain the story for both parties through time or commitments will fail. more…

Selecting a Business Valuation expert

by Steve Popell, Feb 18, 2010

There are myriad reasons why the owner of a privately held company may want or need to have the company valued. Regardless of the reason, finding the right expert will pay off in the quality and utility of the opinion. In this article, Steve offers the criteria for assessment and gives some tips on how to ground your assessments. more…

Author’s Journey #9 – Cultivating the habits of writing success

by Roger Parker, Feb 19, 2010

Essential habits for writing success are Targeting, Positioning and Efficiency. In this article Roger describes how he put this theory to practice when writing his next book #Book Title Tweet: 140 Bite-Sized Ideas for Article, Book, and Event Titles. more…

Selecting a Business Valuation expert

by Steve Popell on February 18, 2010

Introduction

There are myriad reasons why the owner of a privately held company may want or need to have the company valued, including (partial list):

  1. Acquiring another company
  2. Selling the company
  3. Buy-sell agreement
  4. Repurchase of minority shares
  5. Divorce
  6. Partnership breakup
  7. Estate planning
  8. Probate

Regardless of the reason for the valuation or the urgency of the task, finding the right expert will pay off in the quality and utility of the opinion.  Here are a few tips to help you to make the best choice.

Background Check

Just as in hiring, you accept a resume on face value at your peril.  Always check references and publications.  In addition, go beyond the references provided by the expert.  You can do this simply by asking the listed references for the names of others who may have valid input on the competence and relationship skills of this individual.  These are called secondary references, and will typically be a more reliable source of information than the primary references.  You can even take it a step further by asking the secondary references the same question and, thereby, developing tertiary references.  Some questions you may want to ask will include the following.

  • Did the expert communicate clearly on all aspects of the prospective assignment at the initial meeting?
  • Did the engagement letter accurately reflect the shared understanding of the purpose of the assignment?
  • Was there a firm fee quote, or did the expert work by the hour?
  • Did the expert exhibit a genuine commitment to impartiality?  In other words, did the expert indicate clearly that s/he would simply go where the evidence led?
  • Was the request for data, including financial, reasonable?  If you didn’t have a particular document or piece of information readily available, did the expert insist on getting it, even if it seemed tangential?
  • Did the actual performance of the expert (data gathering, analysis, report, etc.) match up well with what you expected, based on the initial meeting and the engagement letter?
  • Was the report clear and easily understandable – even by non-financial people?
  • In the case of a divorce valuation, was the expert sensitive to the emotional aspects of the process?
  • How did the expert relate to other professionals on the case, such as a Collaborative Practice team, attorneys or mediator?
  • If you had to make this choice again, would you select this expert?

Absence of Ego in the Process

There is no place for ego or pride of authorship in the business valuation process.  One way to scope out this aspect of an expert’s approach is to determine if s/he is willing to submit a preliminary report that is open to criticism.  It is always possible that even the most competent expert will over-emphasize or under-emphasize some important data or, perhaps, miss something altogether.  It is also possible that something unexpected has cropped up during the valuation process that was knowable as of the valuation date, but the client(s) neglected to mention same.  The expert should be open to (even anxious for) the client(s) to provide such feedback.  The objective, after all, is the best valuation report possible, not the easiest to crank out.

Fundamental Understanding of What is Really Going On

Fair Market Value (FMV) is defined as what a hypothetical willing buyer will pay a hypothetical willing seller in a hypothetical free market in which both sides have essentially all the information they need to make an informed decision, and neither is compelled to conclude a transaction.  FMV is an appropriate standard of value in many situations, such as probate or any other circumstance in which the opinion will be presented in court or involve the IRS or other federal or state agency.  However, a number of other scenarios call for a different standard of value.

In a divorce, for example, or for a buy-sell agreement for a company with 2-4 owners, investment value is far more appropriate than fair market value.  The reason is very straightforward.  In either of these situations, the objective is not to determine what some outsider would pay for the company, or a portion thereof.  Rather, it is to ascertain what it is worth to one spouse (or one owner) to own a greater share of the company.

Avoid an expert who fails to grasp this critical distinction.

Flexible Fee Schedule

Anyone can charge several hundred dollars per hour.  It is more challenging to provide a fee schedule that offers the client genuine choices.  There are a few key questions in this regard.

  1. Will this opinion be offered in court or to some government agency?  If so, an “official” opinion will be required, and will be the most expensive.  If not, does the expert offer an “unofficial” opinion for a lot less money?
  2. Can delivering a much shorter report cut the cost significantly?
  3. Is there a choice between a broadly based analysis and report and one that considers financial documents only?  Is door #2 cheaper.

In sum, you have a right to expect quality performance from an expert with whom you have an excellent relationship, and for a cost that is commensurate with you needs.  Go for it!

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.

strageic acquisition just askThe Excess Earnings Method is the most commonly used approach to valuing a sole practitioner practice in family court.  In this method, “Excess Earnings” equal practice earnings in excess of the sum of reasonable compensation and a reasonable return on the practice’s Net Assets.  Excess Earnings times a multiplier (reflecting the relative risk of the earnings stream) equals Goodwill.  Goodwill plus Net Assets equals the total value of the practice.

Since Goodwill typically represents the majority of value, the excess of practice earnings over reasonable compensation (what the practitioner could earn if employed elsewhere in the same specialty) is the key element in this process.  Unfortunately, an often substantial portion of practice earnings is counted twice in a court settlement: first, in the valuation of the practice and, second, in determining support payments.  This problem of “double dipping” raises serious questions about the fundamental fairness of the method.

How It Works

Let’s say that a female CPA (the primary breadwinner in the household) earns $200,000 per year after all expenses in her solo practice.  Her firm’s Net Assets equal $50,000, and a reasonable return on those assets would be 10%.  If she were to do the same work for a comparable practice, she would earn $120,000.  Therefore, practice earnings exceed reasonable compensation by $80,000 per year.  Since her practice earnings stream appears to be relatively secure, the multiplier is set at 4.  The calculation of practice value would be as follows:

Excess Earnings          $80,000 ($200,000 minus $120,000)

Minus              5,000 (10% of $50,000)

Equals          $75,000

Goodwill         $  75,000 (Excess Earnings)

Times            4 (Multiple)

Equals         $300,000

Practice Value          $300,000 (Goodwill)

Plus                        50,000 (Practice Net Assets)

Equals                      $350,000

So far, so good.  But, now, the question becomes how much of her earnings are used to calculate spousal support?  If the entire $200,000 is part of the calculation, $80,000 of that total is being counted twice: first, in determining Goodwill and, second, in setting support payments.

Put another way, she has already “purchased” her community property half of the $80,000 annual earnings stream from her spouse for $150,000 (the value of his 50% community property interest in Goodwill) and will pay for it again as part of spousal support.  Small wonder that many sole practitioners believe that they are getting a raw deal.

Solution

Since the culprit in this situation is the double counting of Excess Earnings, the solution lies in ensuring that Excess Earnings are counted fully only once – either in practice value or in spousal support, but not both.  Importantly, there is no compelling philosophical argument for mandating either choice in all cases.  In fact, practice value and spousal support are often negotiated as trade-offs in community property settlements.

For example, if short-term income is the supported spouse’s principal need, then additional spousal support may be far more important than higher practice value.  This couple may agree on maximum spousal support and a somewhat smaller value for the practice.  On the other hand, if the spouse has a high-paying job, the opposite may be true.  This second couple may agree to a maximum value for the practice (that the spouse can use as an investment or retirement vehicle) along with somewhat reduced spousal support.

The critical element in all this is that each party identifies and articulates his or her principal priorities.  By so doing, they are “enlarging the pie.”  In other words, rather than playing a zero sum game (my win in your loss and vice versa) they collaborate to help one another to achieve their most important objectives.

Conclusion

Double dipping is inherently unfair, because it requires the sole practitioner to pay twice for the same income stream (the amount by which practice earnings exceed what s/he could earn as an employee of a comparable practice.)  An approach that allows the parties to choose the most reasonable and appropriate combination of practice value and support payments will best serve the long-term interests of all concerned.

The couple’s ability to reach agreement on the value of the business (a typically nettlesome issue) will often “lower the temperature” in the room, thereby facilitating agreement on other issues – including non-financial ones, such as custody and visitation.  It’s not often that one gets the chance to take two bites out of such an important apple.  Go for it!

PhotoPopellThis 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

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

Collaborative-PracticeThe frequently destructive effects of litigated divorce, especially on minor children, are well known. While the lawyers get much of the blame, the fault really lies with a legal system that, all too often, turns adversaries into enemies and spouses with common interests into winners and losers.

It doesn’t have to be this way.

There is an alternative that can provide all the legal protections of a court process, minus most of the downside. It is called Collaborative Practice (CP), and it deserves your close scrutiny. CP is different from litigation in three important ways.

1. The spouses agree in writing not to go to court. If either party abrogates this agreement, all professionals must withdraw.

2. The spouses agree in writing to provide all relevant information, whether requested or not.

3. While the final settlement must be filed with the court, the couple, not a judge, makes all decisions.

There is a core team of professionals, including an attorney for each spouse, a coach for each spouse, a neutral financial professional and, if there are minor children, a child specialist. When there is a family business, the couple retains a neutral business valuation specialist.

With a neutral, two draining elements are greatly reduced – cost and stress.

The Cost is cut down as the hourly rates for financial and mental health professionals are typically much lower than those of family lawyers, the cost for CP is often less than with litigation. In addition to that, neutral business valuation is much less expensive, because there is only one expert, rather than two; and finally, there is no need for depositions and court appearances and, therefore, legal fees are also cut substantially.

The Stress from a protracted battle over the value of the business can take a heavy emotional toll. The non-manager spouse can feel over matched and at sea in a situation so laden with numbers and financial concepts. The manager spouse is often genuinely afraid that buying his or her spouse’s community property interest in the business will kill the goose that is supposed to be laying the golden eggs. Rival experts can exacerbate these fears and misgivings.

Not surprisingly, the business valuation professional in the Collaborative environment is quite different from the one that delivers an opinion in court. Here are a few of the key differences.

1. The function of this professional is to help the divorcing couple to agree on a value for the business that they understand and believe is fair.

2. The professional is free to deliver a preliminary report, which is open to criticism. If either spouse can make a persuasive case that revisiting an issue, reviewing a document or interviewing a person may have a material impact on the opinion, the expert should be happy to do so. This can never happen in court, where defending one’s opinion is the order of the day.

3. The expert is also able provide a range of value, rather than a specific dollar amount. This option is advantageous for two reasons.

• It is easier for the couple to agree on a range than on a number. Once this threshold is crossed, agreeing on a point within the range should be well within their grasp.

• A range of value allows the spouses to juxtapose business value and spousal support in ways that are beneficial to both parties. For example, a young spouse with a high paying job will often want to maximize the value of the business for use in an investment or retirement vehicle. S/he would probably be willing to sacrifice something in spousal support to achieve this goal. An older spouse with limited income prospects may be primarily interested in maintaining the lifestyle that the business has supported. This individual can afford to give a little in the value of the business in order to maximize spousal support.

When retaining a neutral business valuation specialist, the couple must make two key decisions: the valuation date, and the level of service. In court, the valuation date is typically selected because it is close to the date of separation (business highly dependent on the efforts of the spouse) or to the date of trial (many others, besides the spouse, contribute to the financial performance of the company.) In Collaborative Practice, neither of these markers need be dispositive. Rather, the decision revolves around practical issues, such as proximity to the end of the calendar or fiscal year, at which time the quality of financial information is usually much better than at other times during the accounting year.

In Collaborative Practice, the expert can offer a number of choices in service that accomplish different objectives and cover a wide range of cost. For example, if a valuation opinion were for court, the IRS or some other official body, an official opinion may be required. That is almost never the case in Collaborative Practice, and an unofficial report is much less expensive. In some instances, it is necessary only to review financial documents, rather than cover the entire business landscape – another way to save money. It is not necessary to satisfy a judge in this matter. Rather, the question is: What makes sense for the couple and their available resources?

My future posts will add detail regarding business valuation in the context of Collaborative Practice. In the meantime, if you or someone you care about is entering a divorce process, Collaborative Practice should be front of mind. You can learn more about this important option by visiting the Collaborative Practice website. The site will also help you to find Collaborative professionals all over the U.S. and around the globe


PhotoPopellThis 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.