The Emotional Aspects of Selling Your Business

Selling a company is an incredibly difficult, confusing, and time-consuming process, especially for first-time entrepreneurs like myself. It's a complicated journey with numerous intricate steps, potential pitfalls, and tricksters along the way. The hard truth is, selling a business you've built is emotional. Feelings of guilt, attachment, loss, and uncertainty are natural given the immense commitment required for success. This post is part of a series where I hope to share lessons learned and over a decade of experience navigating the M&A world since selling my first business in 2011.

As a first-time business owner, that first sale was a defining moment professionally and personally. It was an emotional rollercoaster riddled with doubt and conflicting feelings. On one hand, there was immense pride in having built something from the ground up and seeing it become successful enough to attract buyers. On the other hand, the thought of letting it go was unsettling and included a surprising and profound sense of loss. The business had been “my baby” - I nurtured it, sacrificed for it (floated payroll myself in the early days) and poured everything into if for almost a decade.

Doubts inevitably crept in – was I making the right call? Would I regret this decision? How would the sale impact our clients, many of whom had become mentors or friends?

There was unexpected fear and guilt about the effect on employees who had been there since day one, some even becoming like family. Our team's incredible contributions made that success possible. The company’s success could not have been achieved without the incredible contribution of our team, some who had endured intense sprints and overcoming seemingly insurmountable challenges. Some had endured intense sprints and overcame seemingly insurmountable challenges. There was an unexpected amount of fear and guilt about the impact our team, some who had been with us since the company’s founding, had endured intense sprints, achieved incredible success in the face insurmountable challenges and limited resources. As godfather to two of my teammate’s children, what can I do to honor their contribution and ensure they are treated well after the sale?

Selling also brought uncertainty about my own identity and purpose after closing this defining chapter. If I was no longer this company's leader, who was I? What would fill my days with the same sense of drive and dedication?

As emotional as it was, I had to embrace the change and navigate that roller coaster of uncertainty and complex emotions. Here are some tips for preparing emotionally:

• Focus on “why am I selling the business now?” Be clear about why you want to sell - retirement, burnout, new opportunities, etc. In other words, what is that anchor goal you aim to achieve? Is the goal to generate wealth for your family? Pursue another endeavor? Secure the company's future with new leadership? This clarity will inform the entire sale process.

• Clarify your Vision. What comes after the sale? Whether it's retirement, starting a new venture, or pursuing other interests, can provide a sense of purpose and direction to channel energy into.

• Keep Quiet. Don't disclose any intention to sell prematurely as it will hurt employee morale, invite opportunistic competitors to poach, and signal distress to prospective buyers.

• Support. With discernment, lean on you support system and solicit input from those who know you well, have your best interests in mind and have a vested interest in your success. For example; your spouse, a mentor, friends, family, business coach, peers, advisors, or even a therapist to discuss the complex emotions around the sale and maintain objectivity.

• Therapy. I was raised in the “walk it off” generation and therapy was not common. Fast forward to today and I’m an advocate for therapy. Everyone is different and outcomes vary but working with a therapist or does provide tools to process complex emotions and reframe perspective.

• Keep Your Eye on the Ball. Continue running the business as normal. A decline in performance will challenge the purchase price.

• Celebrate. While letting go is difficult, allow yourself to feel proud about successfully building and selling the business. Allow yourself to time to reflect and to celebrate what you’ve built and what you’ve contributed to your team and your community.

• The Best Defense is a Good Offense. Hire reputable third-parties to objectively value the business, manage due diligence, maintain objectivity, maximize value, and ensure a smooth deal process.

While immensely challenging, selling a business you've built can be navigated by being prepared emotionally and surrounding yourself with the right guidance. Having walked this path ourselves, we aim to be the trusted advisors for fellow entrepreneurs facing this significant personal and professional milestone.

We are investors and business owners, family offices, board members, and M&A experts, with an intimate understanding of what it takes to build a business and to exit successfully. Recognizing the absence of advisors who could effectively navigate the personal and professional dynamics of such a sale, PMC was established to offer fellow business owners a trusted advisor that navigate complex turnarounds and transactions and co-create a more prosperous future. Contact us if we can help.

In the meantime, following are additional posts included in this series:

• Considering Selling Your Business? Following Is A Guide And Questions To Help You Prepare

• Valuing Small Businesses

• Take a Vacation Before Selling the Business!

Do You Need a Board?

With experience serving on various boards and mentoring entrepreneurs, I firmly believe in the substantial contribution a strong board can make to your company's growth and the creation of conditions necessary for a successful exit. This post marks the beginning of a series dedicated to the establishment and management of boards for small businesses.

Board of Directors vs. Advisory Board: A Distinction

A Board of Directors is a group of shareholders entrusted with specific legal and formal responsibilities to govern a company, thereby adding value to the company for the long-term benefit of stakeholders. A proficient Board steers companies towards a sustainable future by implementing sound, ethical, legal, and financial policies while ensuring adequate resources. While management handles day-to-day operations, such as strategy, budgets, goals, and compensation, the Board holds the legal obligation to prioritize the company's and shareholders' interests above all else.

Think of an Advisory Board as a team of coaches, essential if you aspire to be a true contender. An Advisory Board consists of non-mandatory subject matter experts who enhance your performance and provide astute business advice in specific areas, such as Sales, Marketing, and Operations. Beyond offering support, these advisors bestow credibility upon your company, facilitate access and connections in new business development and fundraising endeavors. Imagine the impact of having figures like Richard Branson, Jeff Bezos, or Bill Gates associated with your board.

The Value of Boards

Building a successful company demands considerable human and financial resources, and very few can accomplish this feat in isolation. Even the most accomplished entrepreneurs require experienced, invested individuals to offer guidance and insights. When a management team is engrossed in the daily operations, losing sight of the bigger picture becomes a risk.

A Board of Directors can formally and informally assist the CEO and management team in understanding the company's operations and the most effective means of achieving long-term goals. Traditionally, a board serves five pivotal functions:

1. Nominate and, if necessary, hire the CEO and provide mentoring support.

2. Collaborate with management to define a clear strategic direction.

3. Approve the operating budget and ensure adequate capitalization.

4. Monitor performance and provide advice on critical issues such as investments, mergers and acquisitions, human resources, compensation, and regulatory compliance.

5. Uphold good governance practices, legal compliance, and ethical standards.

This post is the first installment in a series about boards. In the near future, we will publish additional articles covering topics such as board candidate selection, compensation, and management. Meanwhile, for regulatory guidance, please refer to the framework established by the SEC, reach out to us for assistance, or seek legal and financial counsel.

For further insights, contact us, or seek legal and financial advice and consider the following resources;

• The Director's Manual: A Framework for Board Governance by Peter Browning & William Sparks 

• Startup Boards: Getting the Most Out of Your Board of Directors, by Brad Feld and Mahendra Ramsinghani

• National Association of Corporate Directors

• Board Management Software; Diligent; Directors Point; BoardPaq

Considering Selling Your Business? Following Is A Guide And Questions To Help You Prepare

Your business has provided for your family, your employees, your customers and your suppliers. And now you may be ready to move on. You may be thinking about selling your business now or in the future.

Timing and speed are important not only because of economic conditions, but also in terms of your business and your estate. Maybe you’re seeking an exit right away. Maybe you’re planning to stay involved in the company. If you have questions about how to proceed, you’re not alone. Many owners share your hesitation about how to prepare for a sale and that’s why we’ve produced this guide.

Selling a business can be a difficult process, and along the way, there are plenty of questions. This guide has been developed to help you quickly assess your personal and your company’s preparedness for the sale, and help you navigate the sale process.

Step 1. Assess Your Personal Readiness. Selling your company is personal. You have no doubt sacrificed time with your family, time with friends and spent frequent late nights and weekends to build your business. For some, their business becomes part of their identify – at least that was the case for me.  Above all else, you need to be personally committed to selling your company to do so successfully.  It will be to your benefit to spend time thinking about your needs and if you are ready to sell.  Following are a few questions to help;

• What type of buyer are you looking for? (e.g. acquirer, growth capital, minority investor)

• What is important to you when selecting a buyer or an investor?

• What would your ideal transition look like? Do you want to; (a) Exit immediately (b) Remain involved 3-12 months post-sale? (c) Remain involved full-time and in charge after the sale? (d) Remain involved full-time as a consultant or employee? (e) Remain involved part-time consultant or board member?

• Besides yourself, who else should weigh in on the decision to sell?

• When would you like to sell the Company? (a) today (b) within a month (c) within a year (d) unsure

Step 2. Assess Your Business's Readiness.  Every business has weaknesses, and buyers will be quick to find them.  Hiding weaknesses will make any buyer uneasy and expect that weaknesses will be discovered. Be proactive. Identify all weaknesses and, if you can, mitigate critical weaknesses before you begin the selling process. Dealing with these weakness or providing a plan for overcoming them will give buyers more confidence. Following are a few questions to help you identify potential weaknesses in your business;

• Over the past three years; have revenues and profits consistently increased?

• Over the past three years; have costs and expenses increased at the same or at a lower rate than revenue?

• Over the past three years, have assets exceeded liabilities?

• Do you foresee market, geographic or demographic changes that threaten the long-term viability of your business?

• Where do you see the Company going? Is your business in a market or geography where the number of customers is increasing?

• Are your products or services distinct and superior to your competitors?

• Does your business enjoy advantages over the competition (e.g. patents, proprietary processes / methods, trademarks, copyrights, etc.)?

• Can you prove that your business is well known and respected? Does your business have favorable online reviews?

• Have your major customers been with you for the long-term or signed long-term contracts?

• Have your major customer accounts been growing year over year?

• Do your customers know and trust your staff? Do your customers rely on your products or services and your team more than on your expertise or relationship?

• Are your processes and policies documented and repeatable? 

• Does your business have modern facilities and equipment? Are all leases (property and equipment) transferable?

Step 3. Decide When to Sell. Every sale is different, and it’s hard to know exactly how long your business will take to sell. According to BizBuySell, 54% of businesses sold in six (6) to eleven (11) months, starting from the time those businesses started looking for a buyer. While six (6) to eleven (11) months is a good estimate, your business’s industry, location, financial performance, and the current economic conditions will all have an impact.

Step 4. Prepare for the Sale

1. Pay off Debt. Keeping debt may turn away a lot of buyers and will typically lower your company’s valuation. The more debt you pay off the better your financials will look to buyers. It might make cash tight until you sell, but this is actually beneficial since it’ll force you to tighten the budget, increase your working capital, which will increase the business’s valuation. Its worth noting that most buyers will ask that you pay off debt with proceeds from the sale, so you might as well take care of it immediately.

2. Organize Company Materials. Buyers want to see that you’re prepared for the sale. Following are the common materials documents buyers will require. Preparing these materials ahead of time will make your interactions with buyers productive and efficient. 

   • Income Statement which shows your business’s revenues, costs of goods sold (COGS), operating expenses, operating and net profits

   • Balance Sheet which presents your business’ assets (equipment, accounts receivable, goodwill) and liabilities (loans, debts, liens, accounts payable)

   • Cash Flow Statement which breaks down all of the money that comes in and goes out of the business or working cash flow. The Cash Flow Statement will answer a lot of potential questions from buyers  and shows how much working capital the business has to work with each month

   • Tax Returns For the last three (3) years. Buyers want to confirm that you have filed and paid taxes for the business. Also, they will look at revenue, net income, and tax payment numbers to confirm that the financial details are correct.

   • Investor Presentation or Confidential Information Memorandum (CIM) which is a summary presentation that should include a summary of the business, overview of management, operating model, market and competitive environment, product or service details, customer and sales summary, operating and financial detail, summary of any patents & intellectual property

Step 6. Organize Legal Documents. At a minimum, you’ll need to start with an Non-Disclosure Agreement (NDA) for potential buyers and a purchase agreement to close the transaction. Different industries, sellers and buyers require different agreements. Some contracts you may need include:

• Non-Disclosure Agreement (NDA);

• Letter of Intent (LOI);

• Purchase and Sale Agreement (PSA);

• Seller Financing Agreement;

• Assignment of Leases;

• Assignment of Licenses;

• Succession Agreements for Employee Benefit Plans;

• Transfer of Patents, Trademarks, Copyrights, etc.;

• Seller Consulting Agreement;

• Asset Acquisition Statement;

• Transfer of Contracts

Step 7. Prepare for Due Diligence. When you enter due diligence, you’ll be asked provide buyers additional information. Regardless, ONLY share information once you have executed a mutual Non-Disclosure Agreement (NDA) with the buyer.

1. Data Room or an online (e.g. Dropbox) location to securely store and share your business’s information with potential buyers. This helps you keep your data organized and gives potential buyers the ability to look at it within minutes. All you have to do is grant them access

2. Additional Materials. The information requested during due diligence will vary by buyer, industry, and the concerns of each individual business. Following is a list of the common materials you’ll be asked to provide;

   • Proof of Business Ownership;

   • Business Licenses and Permits;

   • Payroll Summaries for 1 Year;

   • Outstanding accounts payable, accounts receivable and aging;

   • Current Loan Documentation;

   • Lease Contracts;

   • Sales Contracts;

   • Details of All Chargebacks or “Owner’s Salary” in Your Financials;

   • Three (3) Years of Profit and Loss Statements;

   • Three (3) Years of Cash Flow Statements;

   • Three (3) Years of Balance Sheets

You may not have all of these documents available during the sale process. If that’s the case, be prepared to give a reason why to any potential buyers.

Step 8. Prepare to Close. Work with your attorney and accountant to organize the steps and coordinate closing. Once each step is taken, review the closing-day materials with the buyer to ensure advance agreement for a smooth closing. Following are a list of common tasks to consider;

• Prepare corporate documents. If your business is a corporation, work with your attorney to pass a corporate resolution authorizing the sale

• Prepare government and tax forms such as;

  • Forms required by the Secretary of State or Corporations Commission;

  • Transfer documents for vehicles included in the sale;

  • Transfer documents for intellectual property;

  • IRS Form 8594, which you and the buyer need to complete

• Confirm insurance requirements as per the purchase and sale agreement;

• Prepare furniture and equipment sale list, and note, if any, are under lease;

• Prepare a list of assets excluded from the sale;

• Prepare to transfer contracts and agreements;

• Assemble titles and leases and obtain approvals to transfer assets and obligations;

• List and prepare to transfer work in process

• Finalize accounts receivable and accounts payable, including aging reports;

• Prepare loan documents including:

  • promissory notes;

  • security agreements including buyer’s personal guarantee;

  • personal guarantees from buyer’s spouse and third-party guarantor;

  • UCC financing statement to be filed with your state

• Assemble copies of leases and prepare assignment-acceptance documents;

• Prepare personal agreements including consulting or management agreements;

• Prepare exceptions to warranties and representations, if any;

• Prepare succession agreements for employee benefit plans including profit sharing, flexible spending or others;

• Prepare the bill of sale;

• Other, based on input from your lawyers or accountants 

Step 8. Prepare Purchase and Sale Agreement

1. Obtain a purchase and sale agreement from your lawyer and – in all cases – have your attorney review the agreement before signing;

2. Agree to the closing or settlement sheet which lists all financial aspects of the sale including how expenses and credits are assigned;

3. Agree to post-closing final adjustments to purchase price to account for prorated expenses and closing valuation of inventory and accounts receivable - usually within 15 days of close;

4. Finalize the purchase price to reflect the agreements made during negotiations; prorated rent, utility and other fees; final inventory value; final accounts receivable and accounts payable value;

5. Prepare the closing or settlement sheet, which lists the purchase price and all costs and price adjustments to be paid by or credited to the seller and buyer. Your attorney will prepare this sheet unless your sale is closing through an escrow agent, in which case it will be prepared by the escrow office

Step 9. Schedule the Close.

1. Schedule the closing when all parties are available and preferably during a morning hours when banks and government offices are open;

2. Close the last day of the quarter, month or pay period to simplify proration of expenses;

3. Here’s who may attend:

   • You and any owners of your business;

   • Spouse and spouses of other owners and buyers;

   • Third-party loan guarantors (if any)

   • Your and your buyer’s attorney;

   • Your escrow agent, if any;

   • Others whose signatures will be required.

Step 10. Close the Deal. On closing day, here’s what to expect. You’ll likely take the following steps:

1. Sign the purchase and sale agreement;

2. Sign loan documents;

3. Sign forms to transfer patents, trademarks, copyrights and other intellectual property assets;

4. Sign lease-transfer, vehicle ownership-transfer, franchise, and other asset transfers; 

5. Sign succession, seller consulting, employment, and/or non-competition agreements

6. Sign the bill of sale;

7. Sign articles of amendment to change the name of the business. This allows the buyer to amend the working name used during the purchase process to the name purchased;

8. Agree to the Asset Acquisition Statement, IRS Form 8594, which you and the buyer must attach, showing the identical allocation, to your federal income tax return.

Step 11. Get Paid. Receive the buyer’s payment for the purchase price in full or for a sizable down payment, depending on the payment terms you negotiated.

• If your sale will close in an escrow office will:

  • Provide instructions provided once the escrow account was established;

  • Confirm that all obligations and contingencies have been satisfied;

  • You and the buyer will sign closing documents;

  • The escrow agent will transfer funds and record the sale

• If your sale will close in an attorney’s office:

  • Your attorney’s review the purchase and sale agreement

  • All parties address outstanding obligations or contingencies

  • All parties meet to sign documents and transfer funds

And, with that, your deal is done!  But your involvement isn’t over. You still have to announce the sale and take care of long lists of details and legal items to formally transfer your business and help the transition to the new owner.

DISCLAIMER. This information is provided for use by Phoenix Management Consulting, Inc. clients and prospects. This information do not constitute legal advice or opinions of any kind. Your use of this information is at your own risk, and you should first seek legal advice.  No lawyer-client, advisory, fiduciary or other relationship exists between Phoenix Management Consulting, Inc. and any person accessing or otherwise using our sample documents. Phoenix Management Consulting, Inc. and its affiliates (and any of their respective directors, officers, agents, contractors, interns, suppliers and employees) will not be liable for any damages, losses or causes of action of any nature arising from any use of any of the content or the provision of said documents.

© Phoenix Management Consulting, Inc. | Commercial use of this document without express written consent of Phoenix Management Consulting, Inc. is prohibited.

NFL Coach Bruce Arians On Merit Based Leadership

Bruce Arians has a compelling style as a NFL coach and as a leader. He has a unique ability to understand his team and staff. He demonstrated the ability to develop a merit based organization and promote his staff based upon their capabilities. Full disclosure, I'm slightly biased as a fellow #virginiatech alum and as someone who grew up with an appreciation for diversity. For more, watch his Real Sports segment https://www.hbo.com/real-sports-with-bryant-gumbel/all-episodes/july-2019

What to Expect During Due Diligence

During due diligence, the buyer and seller exchange information as the buyer decides to invest. Attractive companies not only fit a buyer’s Investment Criteria, but also demonstrate the ability to communicate verbally and non-verbally. This post includes the basic components of due diligence and tips from the buyer’s perspective and someone who evaluates dozens of businesses per week.

OVERVIEW. Selling any business can be complex. Within the sale, due diligence is where the seller has an opportunity to highlight the virtues of the company and simplify the complexities of the business. At any point both parties may have a change of heart, sellers may find other suitors, or buyers may find other deals to pursue. An interested buyer will dedicate a progressive level of resources and time into analyzing and understanding your company before presenting an offer, and typically withing the following steps;

SCOPE. There are a number of tangible and intangible items to consider, but at the end of diligence, buyers aim to confirm their interest and commit to a transaction. As part of due diligence, buyers request a wide range of information. Due diligence usually focuses on the following areas (this will vary depending on the industry, the business, and buyer);

TIMELINE. Often LOIs will define the timeline. In short, diligence can take ninety (90) and often extends beyond. Most consider the Letter of Intent (LOI) as the mark the beginning due diligence process. THIS IS NOT TRUE! Diligence begins after the first meeting, and every subsequent interaction (e.g. Google searches, introductory phone calls, etc.) informs whether an buyer will pursue an investment.

WHAT TO EXPECT AS A SELLER. During due diligence, buyers further their understanding of the business, it’s customers, employees, and risks. Experienced buyers expect to uncover new information during diligence, which may decrease or increase the offer, the purchase multiple, or the deals structure (e.g. debt v equity). The buyer will adjust their terms to account for the information exchanged during diligence, and present a revised offer. Unless you’re told differently, the buyer has agreed to commit. Be prepared for an adjustment to the offer, and don’t bail because the terms change.

TIPS FOR SELLERS. In today’s economic climate, potential buyers are willing to search long and hard to identify the best acquisition candidate. Treat potential buyers like a partner - over-communicate and always be honest.

• Define The Ideal. Don’t let the pressure or the process force you into an agreement with the wrong partner. Every buyer provides capital - their skills, experience, mentorship and networks are what makes the difference. Before engaging buyers, answer the following with your business partners, advisors or board of directors. For example; As owners, what are we trying to achieve? (e.g. liquidity, reduced risk, growth, etc.) What does the company need to further its progress? (e.g. product, market share, capital, resources, technology, sales & distribution, etc.) What type of capital is needed? (e.g. growth equity, debt, etc.) Who is the ideal investor? (e.g. private equity, venture capital, strategic, etc.)

• Dedicate Resources. A buyer will likely include a team of lawyers, accountants, consultants and experts during diligence. These people will look into your company and will need access to your team - and a high level of responsiveness will distinguish your company from others. Appoint a senior person from your team who is responsible to respond to buyer requests and provide updates to you and your team.

• Qualify Buyers. Talk with the buyer, understand their skills, experience and their industry knowledge. Most buyers who are a part of a private equity or venture capital fund, are investing other peoples money. Buyers are responsible for being stewards to their investors. Don’t be afraid to ask the buyer why they are a good fit and how they will help your company. In order to determine if an investment in your company is a good decision, buyers must learn about all facets of your business.

• Consider Life After. Early in the discussions, clarify the buyer’s expectations about the potential investment. For example; What changes will the buyer pursue following the investment? What will be the investors role following the investment? What’s the investors role in the decision making process? How often and what types of meetings will the investor require? What is the expected outcome of investor meetings and what type of reporting is required? Will there be restrictions on taking additional investment? Who decides on future and new buyer or investor and the terms?

• Evaluate Fit. Spend a lot of time with the buyer! The buyer may assume a seat on your company’s board of directors. It’s important to find a buyer who you respect. There is no guarantee the business is going to turn out, following the sale or investment. Once in a while, parts of the business need help which may require some work on the part of the buyer. Before you legally bind yourself, ask yourself the following; Do you like them? Do you trust them? When things go wrong, will they have the skills and experience to solve problems? Will the buyer solve problems or have a knee-jerk reaction?

• Trust your Instincts. Often a our identity is tied up in our business, and the thought of selling is frightening and sometimes paralyzing. Stay neutral. Don’t take the buyers questions personally, and continually evaluate how well a buyer understands the company’s goals and the goals of the investment. Immediately upon ANY discomfort, pursue clarification or additional information..

There can be great upside to bringing on an investor. As the seller, its up to you to decide which buyers will be the a suitable fit for your business and your team. Do your research and know what you are getting into! Contact us if you would like additional information about this post or to discuss the sale of your business.

Take a Vacation Before Selling the Business!

If you’re considering selling your business, take a one-month vacation first. Prepare your team. “Get off the grid”. Observe the results. Here’s why:

Delegate. Think of your vacation a test to see what the business might look like under new leadership. One week is no test! But a month? Leave the decision making to your team and resist the temptation to get involved. If the team struggles, you will know what improvements are needed. If the team thrives and the business runs smoothly, you’ll know the business is ready to be sold or ready for a successor.

Observe. This isn’t just about the day-to-day and the timecards, invoices and routine. Nor is it about perfection and having every task completed to your liking. Things will fall through the cracks. That’s inevitable and the real secret is - things fall through the cracks when you’re not on vacation. It’s okay. The test is whether or not you have a team who are confident in being decision makers. You may find that you have senior team members who aren’t comfortable making decisions. Alternatively, you may find the diamond in the rough and find a team member who, with coaching has the talent and capability to lead and make sensible decisions. See who rises to the occasion!

Recharge. You probably don’t take many days off. Or, if you do vacation on the beach or in the mountains you likely respond to email, take meetings and work. It’s ok. You built the business and should take pride in what you’ve built. Not to mention, it’s difficult to leave your customers and your business in the hands of others. We all need a vacation at some point. The exhausted version of ourselves is no good for our customers, team and vendors! Take time to be with the people you love, reflect, gain perspective. Then come back fresh and more motivated!

Improve. During your vacation, your team will find tools and processes that can be improved. After your vacation, debrief with your team and identify what worked, what didn’t, and how to improve. The types and degree of improvements will tell you just how prepared your business is for a sale or a successor. Remember, your business needs to be transferable to a new owner or a successor.

Getting The Most Out of Investor Meetings

I've been in private equity or investing as an angel for the past decade and hope to help entrepreneurs and sellers with some guidance to consider when meeting with Investors. Your initial meeting with a potential investor should begin with your story, your business’s story and the value your business provides to customers, employees, suppliers and your community. There is a ton of information to help you with the presentation. In this post, we attempt to address the topics of finding the right investors and how to manage yourself and your team during interactions with investors. Following is a quick list of “Do's and Don’ts” and a list of resources for your use. Good luck and contact us if we can be of help!

Don’t

• Ask for Money. Investors decline upwards of 90% of the deals at the time they are presented. Let the money come later and focus on the relationship. Clearly, you need capital, or you wouldn’t be talking to an investor. Investors are interested in your business's details, and why you are passionate about it - not just how much you need. Don’t expect an investor to fall in love your business or the investment in just one meeting. It takes time to build a relationship. Explain your business first and let them familiarize themselves with it before talking about funding and capital. Setting terms to an investor is a likely turn-off. If you’re pressed, consider the following response: "Our competitor with similar performance received a 5x EBITDA multiple or a Series A … at a $50 MM pre-money valuation. Here is why our company is better…”

• Don’t Oversell. Investors like the truth. Many deals fall apart in the diligence process because investors uncover facts that differ from what was presented. In fact, approximately ~50% of the deals “made” on the famed television show, Shark Tank, never close for this reason. So, don’t make promises you’re not sure you can keep. You won’t have answers to some question’s investors will ask. That’s OK to some degree. Highlight aspects of the business but “Under-Promise and Over-Deliver.” when discussing milestones, commitments, relationships, among other things. That way, you will have enough room to account for issues that arise, and investors will be happy when you meet or exceed expectations.

• Don’t Interrupt. “Most people do not listen with the intent to understand; they listen with the intent to reply,” according to Stephen Covey, author of The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change. We’re all busy and have been guilty of this at one time or another. Don’t be thinking about your next comment. Don’t multitask and reply to emails. And, don’t interrupt if/when the investor or their team are speaking.

Do

• Focus on the Right of Investors. Your job is to identify investors with ability and the willingness to invest. In addition to the obvious research using Crunchbase, AngelList, LinkedIn, etc. AngelList’s investor-filter will help to find investors who were already interested in your industry. In addition, consider engaging executives who are currently working in your industry. They will be quicker to understand what you’re trying to accomplish, what it will take to build the product and brand and be helpful when it comes to forming a board or pursuing valuable relationships.

• Prioritize. Consider prioritizing your contacts based upon the perception of their ability to invest, their willingness to invest in you and their willingness to contribute follow on investment. Be thoughtful in who you engage and when. Before engaging high priority contacts, you may want to engage a mix of “friendlies v hostiles” (or cold contacts) who can help you build your messaging. To warm up, you may want to engage funds who have invested in companies within your industry - they will be quicker to understand what you’re trying to accomplish, what it will take to build the product and brand and be helpful when it comes to forming a board or pursuing valuable relationships.

• Be Personal and Clear. Investors receive a ton of email and a ton of generic email pitches where someone they’ve never met is looking for capital. CRM’s, email distribution platforms (e.g. Sendgrid) and even Mail Merge are ubiquitous, and investors are quick to identify and delete bulk emails. Personalize your email content and provide evidence that you’ve done your research about the investor, and why you feel investment in your company would be of interest to them. Consider including your pitch presentation, business plan, or other materials for the investor’s review. Close with a succinct request and call to action to meet and discuss your business. Try this technique and find a style which works for you.

• Assume You Are Not The First. Assume the investor receives dozens of pitches in a single day. Not to mention, they are overwhelmed at their job, and in hurry to finish their day and pick up their kid from school or take them to piano practice. As a mentor of mine once suggested; ‘Be Brief, Be Brilliant and Be Gone!”

• Make Your Numbers Defensible. Math or Numbers don’t lie. Highlight the relevant data surrounding your business since the beginning. This helps to level set the conversation and allow everyone to understand where your business is and where it’s going. Most importantly, make your forecasts, market sizing and costs as realistic as possible and defensible. The truth will come out so, don't take this risk!

• Take Feedback without lashing out. Part of the value given to you through a conversation with is their insight. When you meet, expect investors to ask questions, provide constructive criticism, give suggestions, and relay general advice on how they believe you should proceed. Depending on how well your company and your investment fits, the investor needs time to determine if they should pass on the investment or if more diligence is needed before investing. Regardless, listen to the investor feedback and if needed, go back to the drawing board and adjust your presentation, your business or the investors you’re targeting. Remember, too, that it's best to accept rejection without being nasty to a potential investor because, who knows what the future holds, and the investor community is small!!

• Focus on the Relationship. Consider meeting with potential investors when they're not fundraising and there is no pressure to ‘close a deal’. By establishing a relationship with an investor, and one that's built on advice and feedback instead of a financial ask -- you're showing respect for the investor and demonstrating that you are interested in developing a long-term relationship. This will help you to stand apart from others, as and in my experience as an investor, I don’t hear from companies until they need something.

• Be Polite AND Confident. You’ve sacrificed a lot to get where you are and build your business. You should be confident about your business and your ability to execute. During your preparations, focus on exuding the quiet confidence of a professional with the ability to deliver! Make claims but don't trumpet them. Show that you can be confident about your company without looking insecure.

• Know How to End the Conversation. Investors decline upwards of 90% of the deals at the time they are presented. Even if the investor declines to invest, try to avoid being defensive or accuse the investor of being ignorant. It’s likely that you will cross paths again in the future, and there's no benefit to burning bridges. Keep things cordial, push forward, and if things go well, you'll be in the driver's seat the next time you meet.

• Follow Up and Provide Updates. Most investors don't invest in the first meeting. It's important to follow up with a thank you email and keep them updated as you progress. Indicate what you plan on doing and show the investor that you're doing it over time. When you show investors how you're evolving and building your track record, they'll be that much more likely to want to invest in the future.

Additional Resources

• Get Backed: Craft Your Story, Build the Perfect Pitch Deck, and Launch the Venture of Your Dreams by Evan Baehr and Evan Loomis. Entrepreneurs Evan Loomis and Evan Baehr have raised $45 million for their own ventures, including the second largest round on the fundraising platform AngelList. In Get Backed, they show you exactly what they and dozens of others did to raise money—even the mistakes they made—while sharing the secrets of the world’s best storytellers, fundraisers, and startup accelerators. They’ll also teach you how to use “the friendship loop”, a step-by-step process that can be used to initiate and build relationships with anyone, from investors to potential cofounders. And, most of all, they’ll help you create a pitch deck, building on the real-life examples of 15 ventures that have raised over $150 million.

• Business Model Generation by Alexander Osterwalder & Yves Pigneur. One of the best tools for implementing the Lean Startup methodology is the Business Model Canvas (BMC).  This book is the definitive source on how to develop a one-page model of your business (and iterate until you’ve nailed it) before (or instead of) spending months writing a full business plan.  This book is very graphical and hands-on. 

• Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson. For more than twenty years, they've been involved in hundreds of venture capital financings, and now, with the Second Edition of Venture Deals. This reliable resource skillfully outlines the essential elements of the venture capital term sheet--from terms related to economics to terms related to control. It strives to give a balanced view of the particular terms along with the strategies to getting to a fair deal. Whether you're an experienced or aspiring entrepreneur, venture capitalist, or lawyer who partakes in these particular types of deals, you will benefit from the insights found throughout this new book

• Crack the Funding Code: How Investors Think and What They Need to Hear to Fund Your Startup by Judy Robinett shows readers how to find the money, create pitches that attract investors, and then structure fair, ethical deals that will bring them new sources of outside capital and invaluable professional advice. It will give readers the broader perspective—how funding works, how investors think, and what they need to hear to put their money where your mouth is. Every entrepreneur who reads this book will get easy-to-follow deal checklists, a roadmap of where and how to locate the best funding resources and top business mentors for their particular industry and/or geographical location, and a step-by-step process to create pitches that make their idea or business irresistible

Sales Programs for Small Business

Sales programs energize and encourage your team to keep going. This article aims to help you and other business owners develop a modern sales program and motivate your sales team to help you fulfill your business’s mission.

Sales has become more complicated in recent decades and the game has changed with the proliferation of the internet, automation, electronic devices and software like natural language processing (NLP).

Even in today’s data-driven world, it’s difficult to overcome the problems inherent to any sales program - problems which can legitimately constrain a salesperson’s influence and motivation. Simply setting sales goals is especially difficult and further complicated by multiple sales channels (including digital) and competing products. If goals are too easily achieved, salespeople tend to under-perform or even, ‘game the program’ and do what’s needed to drive the most pay.  If goals are too complicated, too high, or out of their control, salespeople tend to give up and the rumor mill starts – and the perception of your sales program is unfair and may distract or even create dissonance among the team.

This article is intended to help you introduce a competitive incentive plan that rewards sales and performance that is aligned with the direction of your company.

Keep It Simple. Incentive plans are supposed to be motivational. To be motivational these plans must be simple, easy to administer and transparent. Consider the following guidelines in your sales program;

1. Focus on outcomes and remember money drives behavior!

2. Create a clear relationship between compensation, roles and responsibilities;

3. Measure your competitors’ programs and ensure your compensation is competitive. According to the Bureau of Labor Statistics (BLS), the median pay for a sales manager is $121,060;

4. Complement sales-based incentives to drive collaboration and good business practice;

5. Make it SMART (specific, measurable, attainable, relevant and time-based);

6. Model the plan for people who can and will overachieve (e.g. 107% of goal);

7. Offer superior performers the opportunity for premium earnings (e.g. accelerators);

8. Build quotas and measure payouts with a credible and straightforward process;

9. Ensure accurate and timely payouts!!

Virtually all sales plans are written and documented. The sales compensation plan should be available and accessible to your salespeople. Your leadership may use it as a tool to communicate the sales strategy and goals and to motivate the sales staff to sell. Following are a few essential elements to include:

• Strategy and the reason why the sales plan exists should answer the following; What is the business trying to achieve? What does the business expect to accomplish?

• Performance Measures and benchmarks to help guide the sales force in terms of their focus.

• Payout Formula, which may be the most essential component, should simply articulate how salespeople will be paid in terms of commission.

• Governance and how your company plans to resolve questions or conflicts over sales compensation that are not covered in the plan.

Select Plans

Salary Only plans are rare yet are more predictable for the business and for the salesperson. The simplicity of salary only salespeople allows the business to predict hiring needs and enjoy lower employee turnover. The salesperson also may experience less stress given that their compensation is not based upon sales and their ability to meet sales quotas. Yet without incentives, salespeople are usually less motivated.  

Incentives (Commission) Only plans are also rare and solely based upon sales. If a salesperson sells nothing, their compensation is zero. These plans do not create loyalty or aligned goals among the salesperson and the company.

Salary + Incentive plans are the most common. Salespeople receive a fixed annual base salary and incentives. To start, consider splitting compensation equally between base salary and commission.  If you’re hiring an accomplished sales leader, consider the industry standard of 60% salary and 40% incentive-based. A less aggressive ratio (e.g. 70% Salary and 30% Incentives) may be used to sell a highly complex or technical product. The fixed annual salary provides the salesperson guaranteed compensation regardless of their performance.

Ideally, salary should be estimated based upon the factors that salespeople can control or influence. For instance, rewarding for customer satisfaction incentivizes employees to be truthful in their promises to customers and also provides an incentive for sales employees to ensure the commitments to the customer are properly communicated to the company. Rewards for bringing in more profitable customers or for retaining customers long-term helps associates focus their efforts on the types of sales that create the most value for the company. It’s best, from an ethics standpoint, if someone besides the sales team collects and reports on these metrics.

Performance Measures

Mix measures the sale of new products or services or maintaining a defined proportion of sales for a given product. Not all of products and services are created equal. Margins vary; so does maintenance and the cost to serve. Whatever the case, measuring and managing to ‘mix’ quotas encourages salespeople to sell the right products and services and in the appropriate quantities.

Account simply measures the addition of new accounts, the growth of existing accounts or the retention of existing accounts.. This is useful if your company is targeting a new industry or sector.

Gross Margin is commonly used in service or project-based companies and measures the gross or contribution margin of a sale to promote income generation and discourage selling under cost.  This measure reduces the reliance on discounts to close sales. Discounts, like rebates, are an unsustainable business practice. Imagine returning to that same customer only to tell them that their discount no longer applies and the price for your services have increased.

Territories are used when sales teams are responsible for clearly defined geographic territories and are paid on territory sales versus individual sales. Paying salespeople for attainment increases fairness when there are differences in opportunities across territories. Each team focuses on a specific territory or region and total sales are split among the salespeople responsible for that territory. To attract reps to this plan and grow your sales teams, you'll want to offer an attractive commission and a well-developed territory. While prospects will be protected from poaching by other sales teams, reps within a specific territory can't follow customers who move outside of their territory.

Other Non-Sales Measures. Contribution based goals work best as part of the performance management process but are generally not recommended for determining incentive pay. Activity measurement can motivate an increase in the quantity of the desired activity but a decrease in the quality.

Contribution-Based. Sales based goals are not the only way to motivate salespeople. Digital sales channels are reducing salespeople’s impact on sales and challenging companies’ ability to measure impact. This makes traditional goal-based incentives less effective for sales management. Consider a commitment-based incentive in addition to the sales-based incentives. For example, measure a salesperson’s contribution to the team and/the company’s marketing (e.g. whitepapers, blogs, speaking engagements, etc.).

Team-Based. If your salespeople work in teams with long sales cycles, consider a commitment-based incentive in addition to the individual sales-based incentives. For example, instead of only individual sales, measure the long-term team performance or the individual’s contribution to the sale (e.g. leads, pre-sales, joint sales, new salesperson training, etc.) or customer retention. Be careful not to distract from the salesperson’s responsibilities, quota or compensation and proceed with caution.

Behavior-Based. Many companies have structures in place to receive ethics complaints, but not all companies have effective systems for handling those complaints. During a recent sales scandal at Wells Fargo, calling the ethics hotline was, reportedly, like submitting a letter of resignation. A good reporting system is sponsored and promoted by executives, rewards honest and sincere reporting, and responds appropriately to complaints.

Payout Formulas. Actual Sales / Quota = Attainment

Quotas are set on a recurring basis and used to establish a salesperson’s goals. To start, consider a "bottoms-up" approach where your team estimates the market opportunity and each territory or salesperson quota. Inputs will vary but generally consider;

• Sales Volume and Average Value Average Deal Size

• Qualified Leads (per Month)

• Percentage of Qualified Leads that Close

• Prospect to Sale Duration or Duration of Time to Close a Sale

• Average Revenue Per Salesperson

Quotas must be realistic. Unrealistic targets tend to result in undue stress on sales associates, increased turnover, and unethical behavior. In the case of Wells Fargo, if 5,300 of your employees start cheating, it’s a good sign your expectations are too high.

Seasonality. Most businesses are seasonal or experience slow sales in the first two quarters of a year, with the remaining two quarters making up for the difference. Consider assigning quota weights that account for such seasonality. For example, your company might assign a 30-40% of the seasonal weight to the first two (2) quarters and a weight of 60-70% to the last two (2) quarters of the year. This way, the sales person has a fair chance to meet their goals, despite seasonal differences.

Attainment is the actual percentage of quota sold by a salesperson and for a specific period.  Industry standard is seventy-percent (70%), meaning a salesperson must actually sell seventy-percent (70%) of their quota to become eligible for the sales-based incentive. Following is an example;  

Annual Sales Quota = $2,000,000; Commission; 10% of Sales

Actual Sales = $2,500,000; Attainment = 120%;

Q1 Quota = $500,000; Sales = $1,000,000; Attainment = 200%

Q2 Quota = $500,000; Sales = $100,000; Attainment = 20%

Q3 Quota = $500,000; Sales = $100,000; Attainment = 20%

Q4 Quota = $500,000; Sales = $1,000,000; Attainment = 200%

Annual Sales = $2,200,000; Annual Attainment = 120%

Annual Sales = $2,200,000 * 10% Commission = $220,000

Ranges. Rather than setting quota on a single number, consider “Attainment Ranges”. For example, rather than a specific goal of $2 million for a salesperson, set an “Attainment Range” of $1.8 to $2.2 million.  Once a salesperson meets seventy-percent (70%) of the quota or $1.4 million of the $2 million, the salesperson is paid 70% the sales-based incentive. Ranges are particularly useful for startups or companies who are less confident about the accuracy of quotas and have a larger “success range” with a slower rise in incentive payout. To avoid demotivating your team, don’t set the range too broadly or too low!

Accelerators are bonus payments that reward exceptional performance or when a salesperson exceeds quota. For example, the salesperson would be paid 15% accelerator on sales of 125% of quota. Following is an example;

Quota = $2,000,000; Commission; 10% of Sales

Actual Sales = $2,500,000; Attainment = 125%;

Attainment + Accelerator = 140% or 125%+15%;

Adjusted Sales = $2,800,000 or $2,000,000 * 140%

Adjusted Sales $2,800,000 * 10% Commission = $280,000

Sales Cycles  

• Short Sales Cycles require short time frames and limit the potential damage in companies with short sales cycles (higher transaction volume and lower value or revenue per sale). Consider monthly reviews with quarterly quotas and payments. This way, a salesperson can have a bad month yet meet their quarterly quota and receive the full payment.

• Long Sales Cycles don’t benefit from a shortened time frame. Long Sales Cycles are common among large deals, team based sales and deals that take a while to close. Consider quarterly reviews with quarterly quotas and payments to allow enough time for sales to normalize.

Governance

Determine whether you need to make changes. After the results of the analysis are clear, the team should give thought to whether the sales compensation plan needs to be updated – in terms of goals, quotas, or pay ratios. Updating the sales compensation plan mid-stream is common in business today. "We've seen a fairly consistent trend that on average nearly two-thirds of organizations are changing their sales compensation plans each year," Stoeckman says, citing WorldatWork's latest survey. That change may come even more frequently when business cycles change. Business goals when the economy is moving into an upturn are different than when the economy is going through tough times.

Your first compensation plan won't be able to cover everything. Issues will be found, whether it's what constitutes a new account or what happens when several different people claim credit for a sale. There are going to be things that come up during the course of the year that are not covered or are a matter for interpretation. You will need to spell out the way those are going to be resolved. It may be a committee or a chain of command. When a sales person brings a question to the sales manager, nine times out of 10 they will be able to resolve the situation, but when they're not, there needs to be some means of resolving the issue. A committee might have representatives from sales, human resources, and finance to arbitrate.

Other Incentives

Contests. To temporarily change behavior, consider contests and one-time rewards which can either be financial (e.g. cash prize) or non-financial (e.g. recognition, vacation, dinner, etc.).  To keep everyone’s attention, conduct one contest at a time and for a short period of time (e.g. a month or a quarter). Too many contests or contests longer than a quarter will dilute the urgency!

Decelerators are unpopular as they penalize under-performers.  For example, if a sales person meets 60% of their quota, the incentive compensation would reduce correspondingly (e.g. 60%). Decelerators may protect against excessive incentive costs when goals are set low, especially for large deal sales with long sales cycles. A per-deal value or revenue cap may limit unwarranted incentive payouts for a large windfall that salespeople do not significantly influence.

Promote the Right People. Not all salespeople are good managers and not all managers are good salespeople. Recognize this fact and ensure the people you promote are motivated by the responsibilities and compensation included in their new role!

Final Thoughts

The most difficult task is implementing your sales plan. The success of your sales plan depends on how you involve key stakeholders (e.g. key sales people), when you involve key stakeholders, the motivation for the sales plan and the value offered to your sales people.

No plan is perfect, and your priorities are constantly changing. Your customers and salespeople are naturally looking for new loopholes. This guide will help you get started as you work to understand what will suit your sales team. Some may value cash over incentives or a flexible remote work policy instead of more vacation days.  At the end of the day, do your best to set them up for success and keep them motivated!

Thank you for reading! Contact Us if you need additional approaches or help implementing a sales plan.

Valuing Small Businesses

For many business owners, the business is their largest asset, so it’s normal to want to understand its value. For those of us who’ve run businesses, attaching a dollar value to the company is a delicate matter - especially if you have spent years, blood, sweat and treasure building your company from scratch.

Just like selling a house, the actual value of your business is the amount someone is willing to pay for it. Valuing a business is subjective, and two people could arrive a VERY different conclusions based upon the same set of financial information. Valuations are not straightforward and always include some subjectivity based upon market conditions, historical performance of the business and the company’s market position. 

There is no "one-size-fits-all" valuation and sellers need to decide which method is right for their business based on industry, the company’s size and the circumstances of the sale. If you’re asking yourself “How much is my business worth?” this article will help you understand the various valuation methods in plain English.

Asset valuations are relatively straightforward. The final valuation is the value of the company’s tangible and intangible assets reduced by the company’s debt. This is a common method of valuing distressed businesses or liquidations where the value the company’s cash and other assets (as if they were sold) is reduced by the company’s debt. Asset-based valuations often times are the lowest because they exclude the value of the company's earnings potential and goodwill.

Earnings valuations are often used to value to a healthy business. This method looks at past performance to estimate the company's value by converting future earnings into current dollars (e.g. net present value) and return on investment (ROI).  This is also a relatively simple method to compare different businesses in different industries or locations. However, even this method is imperfect. Although valuation is based on the company’s historical financial performance, the calculation requires earnings to be precisely calculated and agreed to by the buyer and the seller. Anyone who has bought or sold a house or anything on eBay can attest to the fact that buyers and sellers seldom agree on a price. A simple way to address this issue is to create a Market Valuation and compare your company to similar businesses that have sold in your industry.

Market valuations estimate the company’s value by comparing it to similar businesses or “comparables”) that have sold. A reasonable number of comparable that have sold recently and in the same industry must exist to use this method with confidence. For example, a small taxi company cannot base its value off of Uber, just as an internet startup cannot base its value off of Proctor & Gamble price to earnings. Finding comparables for private companies is difficult. You can definitely do your own research and general sense for your business’s value. For example, visit BizBuySell.com or BizQuest.com to find similar companies that have sold and their selling price. If you’re working with an advisor, they’ll should provide you with comparables and a list of recent sales in your industry.

From an investor’s perspective, historical profitability and defensible earnings potential are the most attractive qualities in a company. Years of profit and positive cash flow will make your company stand out amongs the crowd.

If you’re thinking of selling your business, don’t be afraid to contact us if you would like preliminary comparables with no commitment and complete confidentiality.  We provide comps to potential investments and enjoy helping fellow entrepreneurs.

If you would like the help of a qualified business appraiser to value their companies. A good appraiser, with a proven track record in your industry, can significantly shorten the sale process and ensure that your business is priced appropriately. Consider independent firms like; BKD or Crowe.

How Mergers Change the Way Your Company Competes

M&A and partnership deals are at an all-time high. But what about competition? by Benjamin Gomes-Casseres

The U.S. Department of Justice (DOJ) wants to know too. It is reviewing or arguing this question in court for a slew of proposed mergers — AT&T-Time Warner, T-Mobile-Sprint, CVS-Aetna, and Express Scripts-Cigna, to name a few. A court decision on the AT&T-Time Warner deal is due out soon, and it will likely affect the prospects for many other cases.

Traditionally, antitrust regulation has looked for whether a merger increased or decreased competition in a particular market. Stated in this way, competition sounds like something you can measure, like mass or volume — there can be a lot or a little of it, or too much or too little.

Sometimes this model fits reality. In the case of Baker Hughes and Halliburton’s planned merger a few years ago, the Justice Department detailed how it thought the amount of competition would rise or fall (mostly fall) in 30 market segments. The merger was called off when the companies saw the DOJ’s tally, presumably because the parties expected they’d lose in court.

But other mergers suggest that competition is often more complex than that. It may be hard to measure competition as an amount that can rise or fall. Sometimes, the mergers affect the nature of competition itself: how firms behave, how markets are structured, and even how rivalries evolve over time.

Five types of competition are common in business today. Each type gives rise to certain kinds of deals, and these deals in turn can reshape the pattern of competition.

Horizontal competition occurs when firms compete in the same market — this is the type of competition that comes to mind most often. Think Baker Hughes and Halliburton in oil field services, or Staples and Office Depot in office supplies, or T-Mobile and Sprint in communications. The antitrust question in these mergers is the standard one already noted: Will the deal increase or decrease competition in the relevant market, as measured by market shares of the new entity and its likely competitive behavior?

This kind of competition often drives consolidation mergers, in which two firms combine their production and sales. The combined firm may benefit from economies of scale in doing so, but increases in market power may also result.

Vertical competition occurs when firms compete downstream with their buyers or upstream with their suppliers over the surplus produced in their transaction. This is commonly thought of as bargaining with a supplier or buyer. For example, Express Scripts and Anthemwere partners in the medical supply chain. Their partnership recently ended up in court, with Anthem suing for $15 billion that it claimed it was owed from savings that its partner achieved but did not share.

A merger in this context may aim to better coordinate the supply chain by reducing the element of competition from the supplier relationship. While Express Scripts and Anthem didn’t revert to that solution for their conflict, the other mergers in the same space aim at precisely this (CVS-Aetna and Express Scripts-Cigna).

The effect on competition here is trickier to measure than with the horizontal type. The key issue is whether the merger reduces competition in the upstream or downstream market, or whether owning a supplier or a buyer gives the firm too much market power in its own industry. Either way, these mergers that span connected markets change the pattern of competition, because the firms that compete with each other now operate under one roof: CVS won’t need to bargain over the surplus with Aetna, or Express Scripts with Cigna.

Disruptive competition is yet another form of business rivalry, though it is not one often thought of in the context of mergers and antitrust enforcement. More commonly, we think of disruptive competition as the rise of a technology or business model that upends the existing order in an industry. This kind of competition is generally thought of as a good thing for consumers, though, of course, not for the incumbents who are deposed.

This kind of competition can also be affected by mergers and may in itself drive deal making. The DOJ opposed the 2011 merger that AT&T and T-Mobile wanted because it feared that the merger would threaten the role of T-Mobile as a disruptive “un-carrier” in the telecom industry. Incumbents may also strike deals to cope with disruption, as when today’s automotive companies invest in car-sharing services and autonomous vehicle technology. In some cases, firms may form partnerships instead of mergers in order to disrupt an industry — that is what Amazon, Berkshire Hathaway, and JPMorgan Chase say they are doing in their new health care alliance.

State-sponsored competition is the fourth type of competition that is changing the game in many industries. Sometimes, the state sponsorship is through state-owned enterprises, or through industrial policies that support national champions. Either way, these national firms compete differently from private firms in less regulated economies, because of the financial backing of the state and the protection granted by national industrial policies. This kind of competition is not new, though the rise of China has brought it to the doorsteps of every country and major firm.

A number of Chinese acquisitions in the United States have recently been blocked by the Committee on Foreign Investment in the United States (CFIUS), an interagency committee led by the U.S. Treasury Department. The CFIUS argument in these cases has not typically revolved around increases or decreases in competition in the standard sense. Instead, the CFIUS has argued that the deals harmed the U.S. national interest by threatening technology leakage or undermining the health of U.S. competitors. For example, CFIUS blocked the proposed acquisition of MoneyGram by Jack Ma’s Ant Financial over data security concerns.

Collective competition is the fifth type of rivalry common today, though it has been around for years. In this model, firms cooperate with each other in groups to compete against other firms or other groups. Alliances short of mergers are used to coordinate the businesses of the firms that are members of these groups.

The members of these groups cooperate with each other internally and thus suppress competition among themselves. But the groups usually continue to compete externally with the other groups. The clearest example of this pattern is in airlines, where Star Alliance, Oneworld, and SkyTeam compete against each other as groups of allied firms. Smartphones offer another example, in which the members of the Android camp cooperate with each other to compete with the Apple camp.

Even when these groupings do not employ mergers to manage competition, the partners may well violate antitrust rules if their cooperation suppresses competition in the industry too much. (Cartels like OPEC are an extreme example of this collective competition.) For this reason, the airline alliances have been careful to request antitrust immunity before cooperating on pricing. Some airline partnerships have gotten this immunity on the argument that their particular travel markets will remain competitive even with their cooperation.

Because of this variety in how firms compete today, the market impact of mergers and partnerships is often hard to evaluate. In part, this difficulty is because we can never predict the future behavior of firms. But, more than that, there is not one measure or dimension to be evaluated, but several. The key question is how the deal affects the shape of competition, not just its intensity.

Benjamin Gomes-Casseres is an expert in alliance strategy and a professor at the International Business School, Brandeis University. He has been studying, teaching, and consulting on the strategy of business combinations for thirty years, and is the author of three books including Remix Strategy: The Three Laws of Business Combinations (HBR Press, 2015). 

Technologies for Smaller Businesses

In today’s business, most interactions are virtual and email marketing can be one of your strongest channels for ROI and customer acquisition.  Sales and Marketing technology is designed to enable companies to grow and improve. We’ve all heard of Salesforce, but Sales and Marketing technology is wide and complex with hundreds of applications on the market.

Source. Gartner. Use this map to understand the connections between business functions (neighborhoods), applications (tracks) and providers (stations).

With hundreds of options to consider, finding the right software is a big challenge. The wrong technology can quickly become a distraction and by Accenture’s estimate, over 55% percent of sales professionals consider technology to be more of an obstacle than a facilitator.  We cannot emphasize the point that one size DOESN’T fit all nor can we emphasize enough the importance of finding the technologies best suited for your company. K2 doesn’t help companies select software. If you need help selecting software, let us know and we will refer you to one of our trusted partners.

In the meantime, this post attempts to consolidate technology recommendations for small and medium-sized businesses. Our hope is to simplify our observations after hundreds of hours of research, implementations, and use and offer a selection of proven technologies which fit well within smaller organizations.  Contact us if you have suggestions, or if you have different feedback that differs. We enjoy learning new things.

• Sendgrid is primarily an email marketing tool. Sendgrid is arguably the industry leader in email marketing and is neither the cheapest nor the most expensive option. Sendgrid helps you craft campaigns, A/B testing, segmentation, and spam filter diagnostics. Additionally, Sendgrid offers incredible email analytics, 24/7 live support, easy integration with a dead simple API, and their reputation for having good deliverability. MailChimp and ConstantContact are worth a look as well

• Hubspot is a popular Customer Relationship Management (CRM) solution. In addition to traditional CRM features, HubSpot’s marketing software that helps businesses transform their marketing from outbound (cold calls, email spam, trade shows, tv ads, etc) lead generation to inbound lead generation enabling them to "get found" by more potential customers in the natural course of the way they shop and learn. Be sure to take a look at Salesforce, Pipedrive, SugarCRM and Microsoft CR. the question best choice will depend upon your company size, the complexity of your products, services, clients and sales processes. The more complex or sophisticated, the more you should expect to spend to implement and maintain

• LinkedIn Sales Navigator is designed for sales professionals. Navigator helps you better target, understand, and engage with buyers amongst LinkedIn’s 500 million member network. Give your team more intelligence on the prospect like; company revenue, employee count, industry and current technology stack: analytics tool, live chat provider, etc. Navigator is worth the money if you have an effective, repeatable sales processes.

• List Giant. Lead generation might be the biggest issue for a salesperson. ListGiant allows you to compile a targeted consumer or business list for your direct marketing campaign. The interface is self-explanatory to use, so if you’re new to direct marketing. All you have to do is fill in your lead’s name and company domain, and you can get anyone’s corporate email. All the emails come validated but if you want to prove a specific email is correct, you can use the ‘Email Verifier’ tool to be sure.

• PandaDoc document automation software allows you to view and sign proposals online. You’ll get alerts when prospects look at your contract, proposal, or quote. Also, check out DocuSign and Adobe

• Trello is one of the leading project management and collaboration applications on the market. Regardless of the company size, project management software is a must. Trello is easy to use. The card (e.g. Kanban) system contains all possible nuggets of information about a project. Drag and drop functionality is helpful and the interface allows in-line editing. Also, Trello allows for messaging, to-do lists, doc storage, and other features helping sales teams. The website is also accessible from any browser, whether mobile or web-based, smartphone or tablet. It keeps things organized when the cards can be placed in lists to track the progress of a project, assign categories, or just keeps things neat.

• YouCanBook.Me (YCBM) promises no more email back-and-forth for fixing up appointments. YCBM is one of the popular tools teams use for scheduling encounters of any kind – from one-on-one to group meetings. With YCBM, anyone can set up an appointment on their available dates.

• Slack is probably the most popular collaboration software on the market. Slack allows your team to send direct messages, create channels and private groups, and make audio or video calls. It might not be the cheapest or simplest, but I have yet to find anything that compares

• Skype has had a tremendous footprint since 2003. It can be a bit ‘bandwidth’ heavy at times but for the price, its value and reliability are far superior to Google Hangout or GoToMeeting. Skype allows you to conduct audio and video meetings with both your team and your clients. As a Microsoft Product, Skype also features integrations with Office and Exchange.

When you're ready, following are a few more advanced tools we’ve found useful…

• Clearbit Reveal allows you to create granular retargeting campaigns based on site behavior and psychographic and firmographic data: job title, industry and more. Clearbit identifies web traffic by dynamically converting 85 data points including IP address to create full profiles for all site visitors, including name, company, revenue, employee count and contact information for sales.

• Datanyze helps B2B companies develop to identify and close their best accounts and track your competition. Datanyze aggregates company-level data based by crawling the web for technographic data of 35M companies to help you build a more robust view of prospects and customers.

We live in the digital age we simply can’t do without modern technology. Implementing any technology is a commitment in time, finances and resources. At the risk of stating the obvious, it’s important to explore all options, sift through the frills and find the tools that are right for your business. To complement this post, Professor Terri L. Griffith, Ph.D. offers simple advice on how to choose the right software. She suggests managers “stop, look, and listen” to its impact on our the organization.

Time to Hire a CFO?

Accounting and finance are cogs in the engine of which business runs - but not many of us (business owners) can justify taking time away from sales or customer matters to focus on ‘closing the books’!

There is a point where managing the finances becomes a critical business function or becomes overwhelming. Usually, this is a good thing. In my experience, the companies who need to dedicate internal resources to accounting and finance are those who are preparing for a merger or acquisition, companies with either $10MM in revenue; companies with inventory; or companies with multi-entity (e.g. subsidiary transfer pricing) or international transactions.

Responsibilities. A CFO or controller may oversee all accounting and financial processes including; budgeting, cash flow, profitability, key performance indicators, and the overall profit picture. A CFO or controller should provide a clear measurement of the company’s financial performance, provide insight into the future (e.g. forecasts), and provide insight future working capital needs and capital acquisition strategies. A CFO or controller should be able to implement improved cash management practices that improve cash flow, improve budgeting and forecasting. He or she should be able to perform ‘comparable analyses’ and compare your business to industry benchmarks or similar-size companies in the same geographic area. A CFO or controller should analyze the tax and cash flow implications of different capital acquisition strategies — for example, leasing vs. buying equipment and real estate. Finally, a CFO or controller should implement adequate internal controls (e.g. Sarbanes Oxley) to help safeguard the business from fraud and embezzlement.

He or she may take a seat at the CxO table or the board of directors and may serve as your go-to person for all matters related to your company’s finances. Additionally, he or she may as the primary liaison between your company and financiers (e.g. investors, bank, etc.) to ensure your company is compliant with any capital requirements or loan covenants.

Full Time or Part Time. Hiring a full or part-time CFO or controller represents a major commitment in time, effort and expense. CFO’s typically command substantial high salaries and attractive benefits packages. First make sure you the budget to compensate a CFO. If you’re committed to hiring a full time CFO or controller, consider retaining a specialized and executive recruitment firm like, Adam James. (Ken and John are the best!)

If you’re unable to commit to hiring a full-time role, consider a part-time hire and contract from FirestoneCFO. The contract will keep costs ‘variable’ as well as provide the benefit of working with a CFO without the salary and overhead. Consider whether your company has grown and needs more than simple bookkeeping and basic reporting. And, if you can relate, it may be time to add a CFO or controller to look beyond day-to-day accounting to a more holistic planning and measurement of the company’s financial performance.

Despite being indoctrinated at the University of Chicago, an institution known for developing CFO’s and other finance talent - a good CFO can make all the difference in your company’s current performance and its future! As always, if we can help contact us.