As I look back, I see how things have changed. I have changed, my family has changed, technologies have changed, my business has changed, and the industries I work in have changed.
In today’s business environment, a culture of change is essential for every organization. In my younger days, I would recommend change for the sheer fun of it. Now, older and wiser, I only advocate change when there is a real reason to do so.
For most people, change is difficult. Change takes something familiar and replaces it with something unknown. Each organization has people who are change resistant. And each leader, manager, and supervisor knows exactly who these people are. With such folks, their aversion to change varies from unspoken trepidation to being overtly confrontational. Regardless of the manifestation, we need to be compassionate, realizing that these reactions are merely their way of responding to fear—fear of the unknown.
To establish a change-oriented culture in our organizations, the first step is to minimize employee fears towards change. Generally employees can accept change if 1) the change is incremental and small, 2) they have a degree of input or control over the change, and 3) the change is clearly understood.
The key is communication. Address change head on. For every change, employees wonder how it will affect them:
Could they lose their job?
Might their hours be cut?
Will they be asked to work harder than they already are?
Will they be made to do something unpleasant or distasteful?
What happens if they can’t learn the new skills?
These are all worries, worries about the unknown. As with most worries, the majority will never happen. But with a lack of reliable information and top-down assurances, these irrational worries take on a life all their own.
Successfully orchestrating change requires effective communication. Not once, but ongoing; not to key staff, but to all employees; not by one method, but by several: group meetings, written correspondence, and one-on-one discussions. A true and effective open door policy helps, too. Also, it is critical that a positive attitude is set, at the beginning, from the top of the organization, which never waivers. Celebrate milestones, generously thank staff along the way, and provide reasonable rewards at the end.
Successfully taking these steps will send a strong signal to staff. Even though the change may still concern them, they will be comforted knowing they have accurate information and the assurance that they are safe and will be protected. And for each successful change, the next one becomes easier to bring about.
We will know we have successfully created a change-friendly organization when our employees—all of them—get bored with the status quo and begin seeking change on their own. They will ask for more challenging work, seek to expand their job, and want to add new technology. At this point, the potential of our organizations becomes unlimited; the personal growth of our staff, unshackled; and the future, inviting. We don’t know what that future will entail, only that things will change for the better.
So, sit back and enjoy the ride, fully confident that the only constant is change.
Just as we experience spring, summer, fall and winter each year, there are a similar number of cycles for entrepreneurs. It’s extremely important to understand into which cycle you presently fit, because it determines how you approach growth, helps pinpoint your most comfortable financial options and makes evident your tolerance for risk.
So, what are those four cycles?
Here are some easy-to-remember names: Growers, Gliders, Speed-bumpers and Exiters.
Consider the case of John, a man in his early sixties whose software company has coasted along for years. The business is growing steadily, although at a much slower pace than twenty years ago.
John’s financially set for life and wants to enjoy retirement by traveling with his wife and spending time with his grandchildren. Although there’s no immediate hurry, he’s looking to cash out from his company, which is now largely in the hands of his capable daughter.
As you might guess, John is an Exiter.
At a social function, John strikes up a conversation with a husband-and-wife team named Jason and Tara who run a fledgling software company of their own, although they aren’t direct competitors. Jason and Tara have just won a significant contract and their products are receiving good reviews, but they need capital to meet their demands.
These classic Growers ask John for advice, figuring (correctly) that he’s seen it all. So what does John tell them?
Growers: A Grower is the type of entrepreneur typically depicted in film, on television, in books and all other forms of media. These are the businesspeople looking to expand their operations, often rapidly. They generally have a healthy appetite for assuming risk and are loaded with self-confidence.
John tests Jason and Tara by asking them what they’d do if they received a one million dollars gift. Would they invest all (or most) of that money directly into their business or would they hold on to it, essentially saving it for a rainy day?
John’s happy to hear that his newfound friends didn’t hesitate before saying they were confident in their business and figured that investing the money would go a long way toward solving their growth issues.
John tells them that since their business prospects are solid, there would be numerous financing options available for them ranging from the tried-and-true Small Business Administration (SBA) loan to the ancient practice of factoring to everything in between.
While John is speaking, his audience grows, enthralled by the wisdom he’s imparting. One of the listeners is a long-time friend named Mary whose small custom-framing chain of stores is stable and profitable. She is a Glider.
Gliders: Mary tells the group that she’s reached a happy point where she’s making a solid amount of money, expects her business to remain sound and is loath to wreck a good thing.
John’s been somewhat of a mentor to Mary over the years, so he poses the same hypothetical one million dollars gift question he just asked Jason and Tara.
That led Mary to waffle a bit. She first said she would place a significant chunk of that gift into mutual funds, happy with a smaller return, but still available to be used if need be. After more thought, she decided to place about 75 percent in her business because she realized she was already generating a higher return than what a mutual fund offered.
John approved, noting that keeping a business on an even keel is never a bad thing, especially for someone like Mary, who is beginning to consider retirement options. He also pointed out that since her business was doing well; there’d be no shortage of palatable financial options available if the need arose.
The conversation lurches in a different direction, however, when a frazzled-looking entrepreneur joins the discussion. That would be Derek, the founder of an online sporting goods store. Derek’s business was growing at a double-digit rate, but he overestimated his market and is now stuck with a warehouse full of unsold goods—not to mention his bank wants to pull its line of credit and is demanding repayment.
Derek, a textbook Speed-bumper, asks John what he should do.
Speed-Bumpers: John points out that a little rain falls on most people’s lives at some point and entrepreneurs aren’t immune.
Again, he brings up the hypothetical one million dollars gift.
It doesn’t take long for Derek to gain clarity when he says that he would plunk most or the entire hypothetical one million dollars gift into his business. While some non-entrepreneurs might consider that foolish, Derek realizes that for any business to succeed, it requires the stomach for at least some risk along with overriding confidence. By stepping back, he realizes that—missteps aside—his company and business model are viable and will need some fine tuning.
John cautions that challenges might lie ahead because some financial options will be closed to him. And the options that will be open may carry a greater risk (or interest rate) or even the possibility of surrendering some equity.
Having provided his sage advice to the others, the group of entrepreneurs questions John about his plans.
Exiters: John replies that even the most-fervent entrepreneur will walk away at some point. The reason why doesn’t really matter.
The group then turns the table on John and asks him what he’d do with the hypothetical one million dollars gift.
Not surprisingly, he says, he decides he’d invest half of it in mutual funds, but put the rest back into the business, noting that it would help his successor daughter.
John points out that succession planning is important, but too many businesses either overlook it or give it short shrift. After all, who wants to be thinking about the distant future when the thrill of running a business still looms?
He notes that eventually that day comes, however, and transitioning power is a delicate process, especially when you consider your legacy, not to mention tax concerns, heirs (whether or not they’re taking over the business) and dozens of other things that often aren’t considered.
John does say that the exiting process, which should be a joyful time, can become burdensome and require professional financial assistance.
With that, the group begins to break up, each having gained a bit of clarity in regards to their particular situation.
Conclusion: What have you learned from this hypothetical situation?
No matter what cycle they’re in, entrepreneurs are a fascinating breed; they represent much of what makes the American business world so great.
That said, entrepreneurs don’t know everything and tend to look at the big picture and forgo some of the fine details. That’s why they sometimes need outside help.
The key to providing that help is recognizing that no two businesses—and their financial situations—are alike and can’t be addressed with a rote game plan.
Ami Kassar is the founder and chief executive officer of Multifunding LLC, speaker, and author of the forthcoming book The Growth Dilemma. Heavily involved in business finance for two decades, Ami has advised the White House, The Treasury Department and The Federal Reserve Bank on the state of the financing markets. A nationally-recognized expert on business capital, Ami Kassar has helped over 700 entrepreneurs generate over 300 million dollars for their businesses. For more information on Ami Kassar, please visit www.Multifunding.com
Astute entrepreneurs are always seeking ways to improve their business, increase revenue, and diversify into related business lines. During this time of doubtful economic conditions, with possible decreased sales and smaller profits, it is even more critical to explore ways to bolster business prospects.
One such way is by working with another organization towards your mutual benefit. This concept goes by different labels, such as joint ventures, business alliances, strategic partnerships, and collaborations. Often these arrangements are informally structured. At other times there is a more formal configuration, sometimes even resulting in a new legal entity established for this express purpose. Regardless of the name or resulting form, the effective consequence is that you now have a partner.
The results of these business alliances can be a sustained revenue stream, a short-term bump in income—or wasted effort and disappointment. In my experience, it is the latter outcome that is most often realized, but it doesn’t need to be that way. Careful advance planning can help avert disappointment and facilitate successful results for both parties. However, before I share my recommendations, let’s first explore why things often go awry: Mutual benefit and satisfaction is required if the result is to be realized and sustained. Click To Tweet
Hoping for a quick fix: Most collaborations take time to produce results. The belief that you can reach an agreement one day and see results the next is unrealistic and prone to disillusionment. If you pursue a joint venture as a last-ditch effort to save your business, it is likely too late to do any good. It is better to seek these types of innovative strategies while you are in a relatively stable position and have the time to nurture and grow them. The payoff will not be imminent, but when done right, it can be sustainable and long-term.
Not willing to contribute: Too often people enter into partnership arrangements with the erroneous expectation that with little or no effort they will realize great benefits from the work of the partner company. This is selfish and shortsighted. Even if results initially occur, they will not last, as the partner will have no reason to persist doing all the work while you reap the benefits.
Pursuing a win/lose agenda: Sometimes one or both parties in a business alliance are trapped in a win/lose mentality. They persist in the belief that the only way for them to come out ahead is for their partner to lose. Again, even if this works for the short-term, it will not last; the end will most likely be filled with accusation and heartache.
Taking advantage of your partner: Other times joint ventures are sought in order to meet a hidden agenda. Perhaps there is some technology, knowledge, information, or expertise that needs to be provided by one party for the project to succeed. The partnership is merely a ruse to quickly and cheaply obtain that desired asset. No one likes to be taken advantage of, and when it occurs, ill will is inevitable and lawsuits are likely.
Inequitable responsibilities and rewards: Arrangements in which one party is consistently expending a greater amount of time and resources while realizing lesser results is one that is destined for collapse. Business alliances that are comprised of givers and takers are doomed from the start.
Lack of agreed upon objectives and measurements: If you don’t know your target, how will you know if you reach it? How will you know if the collaboration is working? Stating that your aim is to increase sales is vague and untenable. Remember that a goal must be specific. It also needs to be quantifiable. Sometimes this is easy; sometimes it is not. Let’s say that the goal is to increase staff morale. How do you measure that? One way might be to track the staff turnover rate, with a decrease in turnover implying an increase in morale. However, is this sufficient and all-inclusive? Does your business partner concur? If your partner wants to measure morale by the number of employee complaints to management instead, with you holding tightly to the turnover stat, it is not likely that there will be agreement on the efficacy of your venture.
No exit plan: It is unwise to assume that a business alliance will last forever. Things change, and what may have been mutually beneficial will one day cease to be. Lacking a clear and defined ending subjects participants to needless worry and anxiety. Suppose that one company needs to buy equipment, purchase inventory, or hire staff for the alliance to continue to function. If there is concern over how much longer the venture will exist, there will certainly be reluctance to make the necessary investments to continue it. This results in tentative and halfhearted decision-making and could doom an otherwise healthy arrangement.
With these pitfalls in mind, let’s consider the recommendations of how to embark upon a successful collaboration:
Be honest and forthright about your expectations and contributions: This is not a time to hold back. Be clear about what you expect and what you will do. Insist on the same attitude from the other person. Holding back key information will not give you a stronger position later but rather will make success less likely.
Pursue a mutually beneficial relationship: If you can’t agree to seek a “win-win” situation, there is really no point in persisting with discussions. Mutual benefit and satisfaction is required if the result is to be realized and sustained.
Set goals: Once it is determined that there is mutual benefit in moving forward, goals or expectations must be established. As previously mentioned, these considerations must be measurable and agreeable.
Do your part: Whatever you agreed to do, be sure that you follow up on it—or ensure that someone else is. Often the negotiation for joint ventures is not conducted by those tasked with implementing them. Therefore, if you are delegating responsibilities that you agreed to, make sure that they are clearly communicated and diligently pursued. If your team doesn’t buy into the project and is not committed to make it work, the contribution that you committed to will not be rendered, and the partnership will fail.
Discuss how and when the arrangement will end: Assume from the very start that the venture will someday end. Discuss what that point is and how to determine it, (which shouldn’t be hard if you were successful with the goal-setting recommendation). Agree on the responsibilities of each company in dealing with resultant assets or remaining inventories in which one party may have a heavy investment. Determine how things can wind down in a controlled, ethical, and responsible manner so that minimal damage occurs to any stakeholders.
While there is much that can go awry in pursuing a business alliance, there is an exciting upside when it is implemented wisely. Aside from producing profitably sustainable results, some joint ventures have been more successful than either founding company; others have been spun off to become their own self-sustaining entity. By avoiding the preceding pitfalls and pursuing the above recommendations, you’ll set up your strategic partnership for success.
Everyone in business is either a Hunter or a Farmer. The working style that fits you best isn’t really a matter of choice, nor is it determined by your job description. It is ingrained by eons of cultural evolution.
The working styles of a hunter and farmer are markedly different. Hunters are linear. It is their nature to focus on the kill. A hunter moves towards a goals, and on reaching it begins to immediately look for another objective to accomplish. A farmer’s work is cyclical, tracking the seasons from planting to harvest. Their evolutionary traits apply to an office environment as well as the outdoors.
Ten thousand years ago we were all hunters. Until humans developed agriculture, hunting was the only way we survived. Those whose job it was to hunt for the tribe knew that failure wasn’t an option. They persevered through fatigue and bad weather until they had accomplished the objective—bringing home food for everyone.
As mankind started farming and domesticating animals, nomadic tribes were able to settle in one place, build permanent living quarters and begin developing societies. Skilled workers could specialize in pottery or tool-making, and tribes began trading goods with each other. Hunting kept people alive, but farming built civilizations. As villages grew into cities, the majority of their populations became involved in growing, transporting and distributing agricultural products. Hunting was relegated to a sport.
The cyclical nature of farming, tilling, sowing, tending and harvesting have morphed into the business cycle of planning, budgeting, implementation and measuring the results. Just as the populations of cities focused on farming, the majority of employees in any business are dedicated to production, along with managing and tracking the production of others. Hunting is left to a small minority; the entrepreneurs, salespeople, executives and creative talent whose jobs are to look ahead and focus on the next objective.
For business owners and leaders, the challenge is to support the linear attitudes of a hunter in a business environment that concentrates on the cyclical tasks of farming. Computerization has given managers exponentially more data to track and measure, but management is by its nature farming, and management books promote farming methodologies. Balanced scorecards, six sigma quality and ISO 9000 are valuable tools, but for the typical hunter, they pose a problem…they are boring.
Thousands of business hunters spend millions of hours each year trying to master the intricacies of process and procedure without understanding why they are doomed to fail. They start to implement an initiative, but then become drawn to the “next big thing,” or simply lose interest in the effort and let things slide. They aren’t excited by potential for incremental improvement, but rather by the newness of the latest management fad. They enjoy building new things, but don’t fare as well in managing them. Their inability to follow through makes them think of themselves as “bad” business people.
The real problem is letting dynamic, creative problem solvers waste time and energy trying to adopt a style that doesn’t suit them. How much more productive could your business be if everyone, including you, worked only on things they enjoyed?
The stereotypical example is that of a top salesperson who is promoted to sales manager. The salesperson is a hunter. She enjoys working independently and “bringing the meat” of a closed deal. It isn’t hard to understand why moving her into a manager’s role is counterproductive. She has no inclination to oversee the work of others, prepare reports, or think about improving the sales process. She wants to hunt, and managing is the farthest thing from hunting.
Of course, the opposite is also true. Take the case of an excellent controller who has advanced to Chief Financial Officer. As a controller, he was focused on detail and deadlines. Measuring and analyzing were his core competencies. Faced with the prospective-looking duties of the CFO role, forecasting, projecting, and seeking new financial opportunities; he is lost. The mere fact that both positions involve financial skills doesn’t make them interchangeable.
Most job descriptions involve both some hunting and some farming. One job recruiter once remarked that “When job descriptions require strength in both styles; you begin seeking a ‘flying mermaid’ to fill the position.” That’s someone who is willing to do detailed and repetitive work all morning, such as balancing accounts and data entry, then shift to an aggressive sales job in the afternoon. Even if you could find someone willing to take on a flying mermaid job, the odds of achieving success in both roles are nil.
Farmers far outnumber hunters in most organizations. Regardless of the owner’s natural style, however, it’s a mistake to seek out similar people for management responsibility. We all want to interact with people who understand us, but duplicated personality traits come with two pitfalls.
The first is when the two of you agree on a course of action, it may be because it’s the best decision, or merely because you just have the same point of view. Including someone who sees things differently than you do in your decision-making team creates better debate and more options. Two hunters together may skip critical details, while two farmers could be putting too much emphasis on avoiding risk.
The second pitfall is that the managerial duties you tend to shun personally also don’t receive much attention from your key manager. Two farmers might focus on process over marketing initiatives, or two hunters who spend their time driving sales without looking at production efficiencies.
Hunters have always needed farmers. They keep things together when the hunter is off chasing the next objective, and make incremental improvements through the business cycle. Farmers depend on hunters to create new opportunities and develop a long-term vision. Both are necessary, and neither is nearly as effective without the other.
John F. Dini is a coach, consultant, speaker and author of Hunting in a Farmer’s World, Celebrating the Mind of an Entrepreneur (winner of the New York Book Festival’s “Best Business Book”), 11 Things You Absolutely Need to Know About Selling Your Business, and Beating the Boomer Bust. Recognized as one of the nation’s leading experts on business ownership, John has delivered over 10,000 hours of face-to-face, personal advice to entrepreneurs. For more information on John F. Dini, please visit www.johnfdini.com.
More than 60% of U.S. business owners are over 50 years old, and many of them are looking toward retirement and the process of attracting and vetting potential buyers to take the reins. The differences in yesterday’s and today’s business landscapes are stark—as Boomers were raised in a highly competitive environment, many face the problem of having built companies that won’t attract a new generation of buyers. Three major trends impact the salability of a business. Understanding these trends can help owners transition successfully in a challenging market, and ultimately identify the buyer who will carry their company’s torch going forward.
Why Do Boomers Work So Hard?
Baby Boomers are 2 ½ times more likely to own a business than the generations before or following. Between 1975 (when the first Boomers turned 30), and 1986 the formation of new businesses in America jumped from 300,000 to 700,000 annually. Faced with fierce competition on the pathway to success, many Boomers chose to chase the brass ring by going into business for themselves. New business start-ups have never again reached that level. The result is that nearly two-thirds of all businesses with fewer than 500 employees are in the hands of people who are preparing to retire.
The impact of the Baby Boomers at each stage of life created a one-time surge in many statistics. They tripled the number of college graduates, and brought over 50 million women into the workforce. Between 1970 and 1980 the population of the United States increased by 11%, but the employment base grew by an astonishing 29%. Replacing such a massive portion of the population in the business sector is no easy feat.
The Perfect Storm
There are three major trends that challenge a small business owner preparing to exit. Like the movie “The Perfect Storm,” these three trends; demographic, psychographic and sociographic, are combining to create a Tsunami that will change the entire landscape of independent business ownership.
Demographically, the generation following the Boomers (Gen X) is much smaller. From a supply and demand perspective, there simply aren’t as many available buyers as the number of potential retirees seeking them.
The psychographic profile of the buyer generation is unfavorable. What business owner hasn’t complained about the work ethic of the younger generation? Raised in a forty year period of economic growth (the longest sustained period of expansion in our history) Generation X and their successors (The Millennials) are more likely to choose family first, and perceive jobs and employers as merely the means to a personal end.
They aren’t wrong. The parents of the Boomers’ understood the difference between work and personal life. One started when the other ended. In their drive for success, the Baby Boomers mixed the two and created the term “work/life balance”. Younger generations are actually returning to an older set of values.
Sociographic trends favor alternative careers over business ownership. Corporate America is well aware of the issues and attitudes of the younger generations. They have already made many adjustments. Telecommuting, sabbaticals, family leave, and flex time are benefits designed to attract younger workers who have a different set of priorities. Few small businesses have the depth or breadth to allow skilled employees to come and go according to their individual priorities.
Young entrepreneurs have little interest in the service-oriented brick-and-mortar companies that dominate small business. They seek a level of freedom that doesn’t require being on call, schedules driven by customer convenience, or a 55 hour work week. Combined with the sheer lack of prospective buyers, a reduction in the number of small businesses becomes more than likely, it is inevitable.
Yet, many small business owners are depending on their company to fund a comfortable retirement. Their plan goes something like this: “I will work really hard until I am tired, and then I will find some energetic younger person just like me who is willing to commit everything for this great opportunity.”
Beating the Odds
Fortunately, if you are a successful business owner, you’ve already proven your competitive instincts and abilities. With some planning and foresight, you can still beat the Boomer Bust and achieve your retirement objectives. There are two pathways to succeeding in a crowded sales marketplace.
Build to Sell: Your first option is to build a business that is attractive to your younger buyers. It allows for personal flexibility. It can’t require a huge down payment, since these generations were raised in a “buy-now-pay-later” world, where they are carrying substantial debt from the day they graduate college, and have little opportunity to amass liquidity.
Your technology doesn’t have to be cutting edge, but it needs to be current. Nothing turns off the tech-savvy young buyer faster than a company that is limping along on outdated software or (heaven forbid) paper. Of course, the other attributes of an attractive acquisition; growing margins, a distributed customer base and predictable revenues, are a given.
Hire Your Buyer: The second option is to hire your buyer. The stereotypes of different generations aren’t universal. Certainly we all know Boomer slackers, as well as young people who are ambitious and hard-working. Lacking capital, many of those younger go-getters would like to own a business but have difficulty seeing how they can make it possible. Identifying such a buyer in your own organization, or even reaching outside and recruiting one, is a viable option if your target date for exiting is a few years away.
Creating your own successor requires a commitment to planning and development, but the financial aspects are fairly simple. A few years of selling equity in small amounts can let your successor build a minority stake. Then he or she can obtain third-party financing for the balance of the purchase so you can maintain control through the process, and take the proceeds with you when you leave.
Remember “The more you work in your business, the less it is worth.” Everything you do to reduce your business’s dependence on your personal talents, to reduce the time commitment of running it, and to make it easier for any successor (whether internal or external) to take over the reins, also increases its value to any buyer.
You can’t change the factors that create the most competitive selling environment in history. Understanding what the future looks like, and realizing that your buyer is unlikely to be someone “just like me” is a critical first step in the process.
John F. Dini is a coach, consultant and author of the award-winning book Hunting in a Farmer’s World, Celebrating the Mind of an Entrepreneur and Beating the Boomer Bust. Widely recognized as one of the nation’s leading experts on business ownership, John has delivered over 10,000 hours of face-to-face, personal advice to entrepreneurs. For more information on John F. Dini, please visit www.johnfdini.com.