Selling A Business For An Outrageous Price: Fact or Fiction?

Today’s guest blogger, Kevin Short, is the author of Sell Your Business For An Outrageous Price (AMACOM Books, 2014), and the Managing Partner and CEO of Clayton Capital Partners, a St. Louis-based investment banking firm specializing in the sale and purchase of mid-size companies.

Have you ever wondered why similar, mid-market[1] companies sell at wildly divergent prices?  I noticed the discrepancy between ordinary and outrageous prices years ago and decided to find the answer.

First, I defined “outrageous price” as one that is at least two times the EBITDA multiple of an average company in its industry. Second, I looked at leverage; the leverage that drives prices up when sellers have it and holds prices in check when buyers have it. Finally, I looked at the transaction process: could we use it to produce an outrageous price?

I started with a four-step Proactive Sale Strategy™ to transform good prices into great ones and to maximize a seller’s probability of closing.

Step One assesses readiness of the company and its owner for sale and addresses any areas that are not sale-ready.

During Step Two we dissect all of the information that we collect in preparation for a buyer’s due diligence to save time later and reduce the risk of a failure to close.

In Step Three we identify a company’s competitive advantage and search for an existing or potential fit between the seller’s competitive advantage and a buyer’s need. We then determine how a seller’s company: (1) can (or could, if given time and preparation) meet a buyer’s immediate need, or (2) could pose an imminent threat to a buyer.

Step Four focuses on potential buyers: which ones can use their significantly greater resources (such as access to capital or more efficient processes) to make more money from a company than can its current owner?

At the end of this process, owners decide if they want to go for an outrageous price. If so, we look for the following four items that I learned (after analyzing numerous outrageous price sales) must be present:

[1] $10M – $250M of value

  1. A competitive advantage that can be leveraged to cause a buyer pain or create gain.
  2. An “outrageous buyer” active in the marketplace who has deep pockets, is motivated to eliminate pain or create gain and has an internal champion pushing to make the deal.

III.        A seller who can trust their advisor enough to follow his or her lead, is self-disciplined enough to resist the temptation to talk to buyers or jump ship when the seas get rough, and has an ability to act.

  1. A transaction advisor who knows how to orchestrate the Outrageous Price Process™. That advisor must understand why a company is successful and be able to communicate to buyers how the acquisition will bring it gain or relieve pain.

The success of this process is dependent on the presence of each of these elements but not necessarily on a strong M&A market. I’ve used it under varying marketing conditions and in all types of industries. Check out my book to learn whether your company could sell for an outrageous price.

To learn more about selling a business, join Kevin Short at our Soundview Live webinar on September 3rd: An Insider’s Guide to Getting More for Your Business.

The Four Global Forces Breaking All the Trends

THE NEED FOR ‘INTUITION RESETS’

Once upon a time, a company such as Toyota used to have strict retirement requirements tied to age. Employees knew that once they reached the cut-off age, they would be asked to retire. No exceptions.

The situation is a little more fluid today. Toyota has a “reemployment” program for retiring workers. As they leave their current positions, retiring employees have the opportunity to apply for other positions at Toyota or its affiliates. The reason for Toyota’s efforts is their desire to keep the experience and knowledge of older employees in the company. “Employers have long focused on youth,” explain McKinsey Global Institute directors Richard Dobbs, James Manyika and Jonathan Woetzel, the authors of a new book, No Ordinary Disruption. “But in a graying world, employers have to reset their intuition. Rather than seeing older employees as legacy costs, they must view them as assets and resources.”

The Four Disruptive Forces

A graying world is just one of four disruptive forces that the authors believe will dramatically alter the landscape of the world more than any previous disruption in history. The other three forces are:

  • The shifting locus to emerging markets and specifically the cities within those markets. Half of the global GDP between 2010 and 2025 will come from 440 cities in emerging markets. Some of them will be well known, such as Shanghai, but most will be small- and medium-sized cities most have never heard of.
  • The acceleration of the scope, scale and economic impact of technology. It’s hard to believe that technology could accelerate even more than what we’ve seen in the past 25 years (a paltry 3 percent of people in the world had a mobile phone 20 years ago). However, companies such as Alibaba and Uber show how quickly technology can redefine industries.
  • The global interconnectivity through movements (or “flows”) of capital, people and information. The original lines of connectivity between Europe and America have evolved into a “complex, intricate, sprawling web,” the authors write.

These four global forces are breaking all the trends, according to the authors. As a result, people and companies are going to need what they call “intuition resets.” The old assumptions, habits and priorities have to be replaced with new ones. Thus, Toyota starts a reemployment initiative for older workers, as described above.

Companies are discovering the power and reach of the exploding technology to “create difficult-to-replicate capabilities,” the authors write. One example is Medtronic’s remote heart monitoring network connecting implanted heart monitoring devices to physicians at remote locations.

Given the shift to cities, companies that used to avoid the costs of downtowns are now recognizing that locating in urban areas is vital to attract the best and the brightest. The success of Uber, Zipcar and Lyft reveal the potential for companies that focus on urban consumers. Finally, in a super-interconnected world, establishing a presence in a major hub, depending on industry and domain, is key.

This is just a tiny sample of the intuition resets that the authors offer in a book that is as sprawling, complex and fascinating as the world it describes.

Executing the Right Company Strategy

How to Choose and Execute the Right Approach

Which strategy is the right strategy for your company? How to make the choice is brilliantly addressed in a new book from three Boston Consulting Group senior partners: Martin Reeves in BCG’s New York office, Knut Haanaes in Geneva and Janmejaya Sinha in Mumbai. In their book, Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach, Reeves, Haanaes and Sinha identify just five different types of competitive environments, and the corresponding strategy that works for each. The story of Novo Nordisk in China illuminates how a company can take advantage by pursuing a strategy that perfectly fits the environment.

Danish pharmaceutical giant Novo Nordisk controls 60 percent of the insulin market in China, which means that nearly 60 million diabetes patients are taking Novo products. Novo’s market share is twice that of its nearest competitor.

How did Novo establish such a strong and lucrative stronghold in China? According to the authors, Novo was the key player in shaping the market. When Novo came to China in the early 1990s, diabetes awareness was very low. Novo worked with the medical community, the Chinese Ministry of Health and the World Diabetes Foundation to educate the country about diabetes. It reached out to patients as well, established its first production site in China in 1995 and an R&D center in China in 2002.

Novo recognized the untapped potential of the insulin market in China and working with the major stakeholders in the country was able to shape the market to its advantage.

The Five Strategies

Novo Nordisk was successful because its orchestration strategy, in the authors’ terms, matched the shaping environment of China’s insulin market. According to the authors, companies can differentiate between competitive environments by focusing on three variables: predictability (can you forecast it?); malleability (can you, working with others, shape it?); and harshness (can you survive it?). These three variables lead to five types of strategy environments, they write, which in turn defines which strategy work best for those environments:

Classical: I can predict it, but I can’t change it. The best strategy for the classical environment, the authors write, can be summarized as be big. The competitive environment is stable and predictable. Competitive advantage is built by the company’s positioning in the environment. This is achieved, write the authors, by “superior size, differentiation, or capabilities.” This strategy calls for companies to analyze the environment, plan the best positioning strategy, and execute it.

Adaptive: I can’t predict it and I can’t change it. In this environment, the most effective strategy, according to the authors, is to be fast. The rules change quickly, and the most successful companies are those who can vary their approach to create several strategic options, select the best option at the right tie and scale it up.

Visionary: I can predict it, and I can change it. The strategic imperative for the visionary environment, write the authors, is to be first. Successful companies envisage the possibility of the market, are the first to build that possibility, and persist in executing and scaling the vision.

Shaping: I can’t predict but I can change it. The key to success in the shaping environment is to be the orchestrator. Novo succeeded in the shaping environment, the authors explain, by engaging stakeholders to create a vision of the future, building a platform through which it could orchestrate the collaboration of all stakeholders, then evolving that platform by scaling and maintaining the flexibility of the platform’s stakeholder ecosystem.

Renewal: My resources are severely constrained. Finally, the only strategy that will work in a renewal environment is to be viable. The key, write the authors, is for the company to react to a deteriorating environment, economize as much as possible, and then choose among the other four strategies to grow.

Insightful, well written and filled with examples, Your Strategy Needs a Strategy is a crystal clear roadmap — actually five roadmaps in one — that can guide companies through the most challenging of competitive environments.

The Start-Up Plan for Starting Now

STOP TALKING AND START DOING

“If you want to sell a product, just make it. If you want to sell a service, just deliver it. If you want to create a company, just create one.” The opening words to the first chapter of Fail Fast or Win Big encapsulate author Bernhard Schroeder’s “just do it” philosophy. Entrepreneurs should stop planning and instead get into the market as quickly as possible. Schroeder, the Director of the Lavin Entrepreneurship Center at San Diego State University, is especially dismissive of business plans, “an anachronistic waste of time,” he writes. “However long you think it will take you to write a solid business plan, you have to double or triple that time and effort to include the myriad details and the research data you need to provide.”

While acknowledging some of the value of a business plan in terms of making entrepreneurs think about their markets or budgeting and cash flow, Schroeder argues that much of the research and scenarios developed in business plans become obsolete by the time the plan is finished. Markets move, and the only way to know what works is to be in the marketplace — not squirreled away creating projections. Once in the marketplace, you not only see what works, but you also make the corrections necessary to succeed.

To help entrepreneurs go “as fast as you need to go,” Schroeder offers in Fail Fast or Win Big a new “LeanModel Framework” composed of four elements:

  1. Lean Resources. “Lean resources” is a mentality of launching the company with the fewest resources possible. “Less is more,” Schroeder writes. “Look to get your company started in the leanest way possible by leveraging everything you can.” Today’s technology helps. It’s now possible to build a prototype for very little using 3-D printers; crowdfunding (to which Schroeder dedicates a full chapter) is a truly revolutionary way to get funding for any venture.
  2. Business Model. While rejecting the major writing project of a business plan, Schroeder urges entrepreneurs to “take the time to understand your marketplace, current trends and your target customer segment, then craft a business model that not only makes common sense but it makes money.”
  3. Rapid Prototyping. The core of Schroeder’s philosophy is to stop talking or planning and start doing, and doing means creating a product or service to sell in the marketplace. This product can be minimally viable — it is in essence a test product for sale. There are Internet tools, online platforms and new technologies that make rapid prototyping more feasible than ever before. There are even “rent by the hour” manufacturing and engineering facilities available. It all starts with a mentality, however, that is not only focused on speed but also focused on success, not failure. “Most people fear failure, and therefore they move too slowly when they should be creating a rapid prototype of their product or service,” Schroeder writes.
  4. Customer Truth. Speed to market is only a first step. The goal is to get to the market fast so that you can start to receive customer feedback as quickly as possible and make the necessary changes sooner rather than later.

Schroeder, who for several years led Amazon’s marketing efforts and has helped numerous small companies succeed in the marketplace, offers an inspirational guide designed for a world in which nothing is too fast — and failure is a positive sign of action.

How Coca-Cola Learned to Combine Scale & Agility

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In today’s ever-changing marketplace, every company is at risk of having a “Kodak Moment”— watching its industry and the competitive advantages it has developed over years, even decades, vanish overnight. The reason? An inability to adapt quickly to new business realities. Established companies are at risk, but it’s no easier being an agile startup, because most of those fail due to their inability to scale. Tomorrow’s business winners — regardless of size or industry — will be the ones that know how to combine scale with agility.

In Design to Grow, a Coca-Cola senior executive shares both the successes and failures of one of the world’s largest companies as it learns to use design to be both agile and big. In this rare and unprecedented behind-the-scenes look, David Butler and Fast Company senior editor Linda Tischler use plain language and easy-to-understand case studies to show how this works at Coca-Cola — and how other companies can use the same approach to grow their business.

Design to Grow is a must-read for managers inside large corporations as well as entrepreneurs just getting started.

IN THIS SUMMARY, YOU WILL LEARN:

• Key differences between scale and agility.

• What it means to design on purpose.

• The three realities underlying the new normal of today’s marketplace.

• The power of modular design for creating agility.

• How open systems can help you create a leaner organization.

Not a Soundview Executive Book Summaries subscriber? Then click on the title to purchase and download it right now to begin learning these critical business skills.

 

Brand Your Brand Through Actions Not Advertising

Today’s guest blogger is Denise Lee Yohn, a leading authority on building and positioning exceptional brands. Denise is the author of the bestselling book What Great Brands Do:  The Seven Brand-Building Principles that Separate the Best from the Rest.  Read more by Denise at http://deniseleeyohn.com/bites/best-bites.

If you’re investing time and money into branding strategies that don’t seem to be making a difference, you’re not alone. Most business leaders are frustrated by the lack of return they’re seeing on their advertising dollars. And yet some companies enjoy rapid growth and success with minuscule marketing budgets.  What are the leaders at these organizations doing that so you should also do?

Great brands consider their brands as verbs, not nouns. They don’t use their brands simply as external images promoted through advertising and communications. Instead, they use their brands to shape:

  • the internal culture they cultivate — using a purpose and values to inspire employees and customers alike
  • the core operations they run — creating customer relationships that are meaningful, valuable, and sustainable
  • the customer experiences they deliver — making differentiating and emotional connections with customers

They conceive of and use their brands as what they do and how they do it.

This means that the stewards of the brand don’t reside in the marketing or advertising department; they’re at the highest levels of the organization.  These leaders ensure their organization delivers the brand identity and core values through everything they do, every day, all day. They recognize that brands are built through actions, not advertising.

When you use your brand as the central organizing and operating idea of your company, it makes it easy for everyone who works on your brand — from your executive team to frontline employees to business partners — to know how to nurture and reinforce it because everyone shares a common understanding of the value you’re creating.  It makes it clear what to do and what not to do, so no one wastes time, money, and resources on things that don’t align with and contribute to that value.

By shifting your concept of brand from noun to verb, you also allow for constant evolution. When you think of your brand not as an identity to promote but as an instrument that you fuels, aligns, and guides everything your company does, your brand values and attributes serve as inspiration for innovation into new markets, new offerings, and new categories.

In this day and age where nearly perfect, ubiquitous information allows buyers to predict quite accurately the experienced quality of products and services, people today rely less on advertising and promises of quality and more on the opinions of experts and other consumers.  People no longer need a creative campaign or an attractive message to help them decide which product to buy.  The influence of brands on purchase decisions seems to have diminished.

But this doesn’t mean that brands have become less important.  Ask the executives at Starbucks, IBM, Apple, or IKEA.  The brands at these companies remain integral to their success because they develop and use their brands as more than mere messages.

You can build your brand the way great brands when if embrace the concept of operating your business based on your brand.

To learn more about building a great brand, join us for our Soundview Live webinar with Denise Lee Yohn: What Great Brands Do.

Five Timeless Lessons From Bill Gates, Andy Grove, and Steve Jobs

THE STRATEGIC RULES OF THREE GIANTS

Bill Gates, Andy Grove and Steve Jobs have been the subjects of many books, and Gates and Grove have even written their own bestselling books. Strategy Rules, a new book coauthored by Harvard Business School professor David Yoffie and MIT Sloan School of Management professor Michael Cusumano, offers a new take on these three giants of entrepreneurship and technology by bringing them together into one how-to guide on strategy. According to Yoffie and Cusumano, the three men, although vastly different in personalities, followed the same five rules for strategy and execution:

  1. Look Forward, Reason Back. The first rule was to look forward into the future and then reason back to the actions required today. A vision of what the world could be was only the beginning for these three men, however. Perhaps even more important was the ability of all three to determine — in detail — what needed to happen immediately to turn vision into reality.
  2. Make Big Bets, Without Betting the Company. Gates, Grove and Jobs were bold leaders, but they were not reckless, write Yoffie and Cusumano. They knew how to time or diversify their big bets so that even huge strategic bets were not irreversible.
  3. Build Platforms AND Ecosystems. Another important rule, the authors write, was to build platforms and ecosystems, as opposed to pursuing a product strategy. Build Platforms AND Ecosystems. Most industries think in terms of products. Technology companies, however, succeed when they build industry platforms, not stand-alone products. Bill Gates would not be among the world’s richest men and Microsoft would not be the dominant company it became if Gates had sold his product — the DOS operating system — to the client that had requested it: IBM. Instead, in exchange for a much lower payment from IBM, Gates kept the right to license the system to other companies. The rest is history.
  4. Exploit Leverage AND Power. All three men, according to the authors, could play Judo and Sumo. Judo requires using the opponent’s strength. Gates, Grove and Jobs could each find a way to turn the strengths of their opponents into weaknesses. One notable example was Jobs’ successful negotiation with the music companies for a license to their music. Paying little attention to the tiny company (only 2 percent market share in its own industry!), the music companies negotiated an agreement highly favorable to Apple and which would be the foundation of the iTunes revolution. At the same time, the three did not hesitate to freely use their power, once they had it, to dominate their competitors, just as a Sumo wrestler uses his pure strength to dominate his opponent.
  5. Shape the Company Around Your Personal Anchor. Personally, the three men had vastly different strengths and interests. Gates was the software coding genius, Grove a precise engineer and Jobs a wizard at design. The companies they built reflected these strengths.

At their peaks, Microsoft, Apple and Intel were collectively worth $1.5 trillion. More than just business behemoths, however, these three companies and their founders changed the world, and our lives, in dramatic ways. Whether an entrepreneur dreaming of creating the next life-changing company or the manager of a multi-billion global company, any business leader should explore and adapt the lessons offered by the business practices of these three extraordinary business leaders.

How to Build Superior Patient Experience the Cleveland Clinic Way

SHIFTING FOCUS TO THE NEEDS OF THE PATIENT

In December of 2004, the 77-year-old father of James Merlino, a colorectal surgeon in training at the Cleveland Clinic, came to the hospital for a biopsy, expecting to be discharged later in the day. Merlino’s father never left the hospital, unexpectedly dying seven days later.

As he describes in his book, Service Fanatics: How to Build Superior Patient Experience the Cleveland Clinic Way, Merlino was devastated by his father’s death, not only because it was so unexpected but also because of the way his father had spent those final days — days of frustration at unresponsive nurses, insensitive doctors and inefficient service, combined with the growing fear that he was going to die.

His father’s death was a turning point for Merlino, who recognized that, contrary to what was taught to rising young doctors, medicine should not be simply the emotionless treatment of disease. Hospitals needed to focus on the entire experience of the patient.

Merlino left the Cleveland Clinic but returned a few years later under a new CEO who had launched a revolutionary Patients First mission for the hospital. Merlino would eventually become the Chief Experience Officer of the Cleveland Clinic. Service Fanatics is the story of how he and the new CEO, Toby Cosgrove, turned the mission of Patients First into reality. Today, the Patients First mindset drives every decision and process of the Cleveland Clinic.

The Cleveland Clinic story is one of overcoming resistance and derision and battling the egos of doctors who treated patients as numbers or diseases, not as people. While doctors attempted to resolve the disease as best they could, they had no awareness of the fears and needs of the person behind the disease. The patient was almost irrelevant; it was the ailment that was the focus.

It is the story of transforming a hospital into a place in which every person on staff is considered and expected to be a “caregiver.” In his quest to transform the hospital’s approach to patients, Merlino conducted extensive research with other hospitals and explored other organizations and industries beyond the medical profession.

One of the first steps in creating a new Patients First environment, Merlino writes, was to precisely define the goal. The challenge in medicine is that the customer is not always right. In Merlino’s specialty, for example, patients must rise from bed the day after their surgery since getting up and walking around is essential to ensuring a good recovery. Patients, however, consider this obligatory exercise the sign of an insensitive doctor. Thus, unlike a restaurant, customer satisfaction can be a treacherous measure for whether a hospital is doing the best job it can.

Eventually, Merlino and his team at the Cleveland Clinic defined Patients First as 1) Safe Care, 2) Quality Care, 3) Customer Satisfaction and 4) High Value Care — in that specific order.

Service Fanatics is the careful narration of an organization meeting a customer-service challenge, and it is at once unique but filled with lessons for all types of organizations. Building the involvement of staff; adding to rather than changing your culture; executing by fixing processes first, then identifying best practices; and myriad other insights into transforming an organization, captured in valuable bullet points at the end of each chapter, will help leaders from all industries focus and align their businesses to the needs of the customer.

The Power of Strategic Sacrifice in a Complex World

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OPTING TO CUT THE COMPANY DOWN TO SAVE IT

John Bell begins his book Do Less Better with the scenario of a troubled company — a regional player in 10 different categories, suffering through four consecutive years of losses, carrying higher than average payroll and inventory costs (the latter exacerbated by more than 1,000 SKUs), and starting to lose the support of impatient shareholders tired of pouring money into a losing cause.

What’s the next steps for a new CEO hired to turn around this sinking ship? If you’re like most new CEOs, Bell writes, you will do exactly what your predecessors tried to do: generate more revenues and cut costs. The difference is that you will do these things better. “You are kidding yourself,” Bell writes. “Strategically, doing more of the same… better is a pathway to incremental improvement, at best. Incremental improvement is never enough to fix strategically weak companies like the one I have described.”

The Greater Sacrifice

Instead of trying to do the same better, Bell believes a much more potent strategy is to make the tough decisions and cut the company down to a more efficient and focused size. Many companies are straining under the weight of their complexity and dispersion of resources, he writes.

He should know. The scenario above was real, and it was Bell who was tasked with saving the company.

Avoiding the incremental, top line-driven strategies described above, Bell and his team embarked instead on a no-holds-barred campaign to reduce activities and costs significantly. They did this by first eliminating the six poorest-performing product lines (out of 10). Even that, however, was not enough. A “greater sacrifice” was needed. “We didn’t want to do it,” Bell writes, “but we would have to divest two of the remaining sacred cows, two product lines with significant sales revenue and growth potential.”

The result was a company that went from 10 to two categories, from 1,000 to 35 SKUs, from more than 500 to 200 employees, and from $75 to $50 million in sales. However, the newly trimmed company was now focused almost entirely on its Nabob Coffee brand. Within three years, the company reached $100 million in sales (95 percent in coffee, 5 percent in tea) and would eventually boast 13 straight years of earnings growth before being sold to Kraft.

Cutting 300 employees and, probably more frightening for most CEOs, reducing the top line by $25 million was no small sacrifice. But as with gardens, courageous pruning, Bell argues, is what leads to growth. Many companies are hurting or, at best, stagnating because their leaders are afraid to, in the words of Bell, “kill their darlings.”

Bell offers one of his former clients, the Campbell Soup Company, as an example of a company that suffers from the refusal to cut loose a traditional business activity. Most consumers today are in the market for ready-made soup. There is not much call for condensed soup, although it has always been a staple of the company. Bell believed Campbell could break out of its stagnation, as other soup companies continue to grow around it, by stopping condensed soup and starting a brand new activity: soup bistros. There is a great market for gourmet soup cafés, inspired somewhat by the Starbucks chain of gourmet coffee shops, and Campbell would be the natural choice to start such a chain. The response from the Campbell Soup executive who listened to Bell’s idea was swift: “We aren’t in the restaurant business. Our mandate is to figure out how to bolster sales of condensed soup.”

For Bell, the first step to a new strategy is a new mindset from leaders, a mindset based on the courage to go small. It’s counterintuitive and may hurt in the short term, but for leaders considering such a move, reading Do Less Better is a great place to start.

Why Only 13 Percent of Companies Successfully Execute Their Strategy

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In today’s corporate world, 87 percent of companies fail to successfully execute the strategy they set for a given year. CEO mentor and coach Dan Prosser shows you how to make your company one of the other 13 percent — a Thirteener. In the process, he explains that the true challenge of building a great company — one that consistently executes its strategy — is understanding the real nature of human interaction and the key to success: connectedness.

Whether you’re a successful CEO, business owner, entrepreneur or leader, or whether you’re struggling to build the business you’ve always wanted, Thirteeners will help you transform your organization’s internal connectedness so you can achieve the next level of performance you’re looking for, create a workplace environment that supports your vision and assures participation by every team member, and produce breakthrough results.

With a focus on business as a network of interrelated conversations and through groundbreaking “Best Place To Work’’ company research, Prosser demonstrates what you need to do to transform the way your employees think and act, to achieve  unprecedented levels of performance for your company.

IN THIS SUMMARY, YOU WILL LEARN:

• Why conversations control everything in your business.

• The 10 conversations that create a connected organization.

• How the Execution Virus can infect your business and how the vaccine of truth can heal it.

• Key concepts of the Breakthrough Solutions Framework.