The purchase price in the majority of merger-and-acquisition transactions is calculated using a common formula: Multiply the target company’s earnings before interest, taxes, depreciation and amortization (EBITDA) by an agreed-upon multiple.
However, Tom Vande Berg, a partner with Crowe Horwath LLP’s Transaction Services Group, says a seller can juggle a company’s assets and liabilities before the deal is finalized in ways that reduce its future cash flows without affecting its EBITDA.
“This can lead to the purchase price staying the same, although the company’s future cash flows could be considerably different than what the buyer expected,” he says.
This is where a working capital hurdle can be used to protect the buyer’s interest in future cash flows.
Smart Business spoke with Vande Berg about working capital hurdles and how they can positively affect M&A transactions.
What is a working capital hurdle?
A working capital hurdle is a predetermined amount of working capital built into the purchase price of a business. It can be a specific amount or set as a range, and it can be adjusted up or down based on the actual working capital at closing. Working capital hurdles help protect the buyer from changes in the targeted company that don’t show up in EBITDA but that have the potential to reduce expected future cash flows.
The adjustment typically is dollar for dollar, but it could be derived from a tiered structure in which the purchase price would change by a predetermined amount based on available working capital when the deal closes.
What is the benefit of working capital hurdles?
A working capital hurdle attempts to include in the transaction the normal working capital needed to run the business. Without the protection of a working capital hurdle, the buyer could end up with less future cash flow than bargained for because it is possible for a seller to maintain its EBITDA but not deliver the promised mix of assets and liabilities.
A working capital hurdle also has noncash-flow benefits such as increasing the likelihood the seller will maintain normal course business relationships.
Assuming cash is excluded from the definition of working capital, a seller could manipulate its assets by aggressively collecting accounts receivable. If receivables are reduced ahead of the transaction, the buyer will not receive the expected future cash flow from them.
A seller also could liquidate inventories by reducing production and inventories for sale. When the buyer then takes over the company, it will have less inventory to sell and will need to incur higher-than-expected costs to rebuild inventory levels. Another possible detrimental action by the seller is slowing payments of accounts payable, which will leave the buyer facing higher-than-expected obligations when the company is acquired.
A working capital hurdle can pre-empt certain noncash-flow issues, such as any ill will that might develop among vendors if a seller stretches accounts payable ahead of closing. It can also help a buyer deal with other issues that affect a deal’s bottom line.
For example, consider a target company that does not maintain an accounts receivable allowance for bad debt. Say the buyer finds that the company should have reported an allowance throughout the year preceding the transaction. Adjustments made by the seller to provide for the allowance at the beginning and ending dates of the analysis period will make it look as if there was no net income effect, and both the EBITDA and the purchase price will not change. However, the balance sheet could overstate the asset balance for accounts receivable, which means it has also overstated working capital. Hurdles can include adjustments for such overstatements and would result in a lower purchase price.
Sellers can also benefit from a working capital hurdle, as it can create a higher purchase price for delivering working capital above the hurdle.
How is the amount of a hurdle determined?
Most often, a hurdle is calculated based on the average monthly adjusted working capital over 12 months. The asset or stock purchase agreement might, for example, define working capital as current assets (excluding cash), less current liabilities (excluding debt), less items that are excluded by definition in the purchase agreement plus/minus pro forma or due diligence adjustments determined during the financial due diligence analysis.
However, a 12-month analysis is not always appropriate because, for example, it might not reflect the company’s current working capital needs if it is experiencing substantial growth. If revenue has grown 75 percent in the second half of the year, it is likely that the working capital at closing will be higher than a hurdle calculated on a 12-month average, which would drive up the purchase price. In this case, the hurdle might best be calculated based on the most recent three or six months.
It is also important to note that 12-month hurdle calculations generally factor out seasonality, but working capital levels could swing significantly depending on whether the purchase is made in or out of season. During a peak-season purchase, working capital is likely to be higher than average, leading to a higher purchase price, while the opposite is true for an off-season purchase.
Like most points in an M&A transaction, the hurdle amount is open to negotiation. However, the existence of the hurdle should usually be non-negotiable.
Tom Vande Berg is a partner with Crowe Horwath LLP’s Transaction Services Group. Reach him at (214) 777-5253 or email@example.com.
Insights Accounting is brought to you by Crowe Horwath LLP
When visiting one of InfoCision’s offices, you’ll notice more than the tables, chairs and water cooler found in a typical workplace. It is not out of the ordinary to pass a yoga class practicing downward dog, a physician scribbling a prescription or a preschool class reciting the alphabet.
While these scenes may be out of place in many employers’ offices, InfoCision has worked hard to make them a staple. The company recognizes its employees are the heart of its business, so it focuses on recruiting and retaining them with a variety of amenities and benefits, says Kim Murphy, vice president of employee benefits at InfoCision.
"We strive to give our employees a work-life balance," Murphy says. "We want to provide opportunities for employees to handle things like exercising at work so when they go home, they can focus on their families. And we believe that contributes to a happier, healthier employee."
- InfoFitness centers: These 1,500- to 2,000-square-foot gyms include top-of-the-line equipment such as treadmills, elliptical machines and recumbent bicycles. The centers also offer classes such as aerobics or yoga, and are open from 7 a.m. to 11 p.m. They are free for InfoCision employees and family members covered under the company’s health plans. Many InfoCision employees and even entire departments attend classes together. "My department works through lunch, then at 4 p.m. we all go down as a group," Murphy says. "It's nice to have that support — on the days when you don't want to go, you have your coworkers pushing you, and it makes it a lot easier."
- InfoWellness clinics and programs: InfoCision provides on-site doctors for both employees and family members regardless if they participate in its health plans. The company also has a prescription concierge service so employees don't need to run out to pick up their medications. Other wellness programs include free smoking-cessation programs and subsidized weight-loss programs.
- InfoKids Early Learning Center: This fully licensed child care center at InfoCision's corporate headquarters in Akron can care for more than 90 children ages 6 weeks to 14 years. The center offers summer programs, two infant rooms and toddler and preschool rooms, play areas, educational toys and computers. It provides a creative curriculum education model. InfoCision's satellite call centers offer subsidized child care options.
- InfoCision Management Corporate University: Geared toward salaried staff who have a clear path of advancement within the company, IMCU offers free or discounted workforce development through on-site programs as well as outside classes and workshops through the University of Akron and other local institutions.
- Employee assistance program: InfoCision provides employees with a toll-free number to call for financial advice or free counseling sessions for anything from a death in the family to a divorce. The employee receives recommended local counseling services, and he or she can use the services as much as he or she needs.
- On-site delis: InfoCision's Café 5 on-site delis offer healthy hot and cold meals, snacks and gourmet coffee. In addition, InfoCision's vending machines now offer healthy choices.
InfoCision also offers a comprehensive benefits package for both salaried and hourly employees, Murphy says. These benefits are available upon hire and include health care, vision and dental plans, paid holidays, free life and disability insurance, paid personal and vacation time, quarterly bonuses, paid training and tuition reimbursement. InfoCision also offers 401(k) participation after 90 days of employment.
Aside from amenities and benefits, InfoCision also strives to create a work environment in which employees can excel. "For as big as we’ve gotten, we still have a family feel," Murphy says.
"It starts when you enter the front doors and the receptionist greets you like you're family even if you've never been here before. We also have a newsletter for employees every month, and our executives speak regularly to our employees and are open for questions or available to talk afterwards. That open communication really makes a big difference."
InfoCision also has a group that travels to its facilities and speaks with employees about what's happening at the company and in the workplace. This program, in conjunction with an employee suggestion box, is meant to provide an open forum for employees to voice ideas or concern.
"We have an open-door policy," Murphy says. "Our employees have the opportunity to speak to not only to their supervisors and team leaders — as our supervisor to communicator ratio is one to nine — but our executives as well. That's not something that's typically found at other companies, but we believe it is a key part of recruitment and retention."
For more information on employee benefits and amenities, contact Kim Murphy at firstname.lastname@example.org or visit www.InfoCision.com.
On November 28, the 2012 Midwest Social Media Summit will be held at Executive Caterers at Landerhaven in Cleveland, OH. This one-day-conference will offer tips and insights from social media experts and top business leaders who will help you reconsider your strategy or validate your approach.
For more information and to register, click here.
And as a special bonus to our Smart Business readers, we're giving away five FREE tickets to the event! To enter the contest, simply do one of two things:
- Visit the Smart Business Twitter page and follow us. Then just send out a tweet that says, "I don't want to be anti-social. I want to attend the 2012 @Smart_Business Midwest Social Media Summit!"
- Visit the Smart Business Facebook page and like us. Then post to the page, "I don't want to be anti-social. I want to attend the 2012 Smart Business Midwest Social Media Summit!"
We'll draw the winners on Monday, Nov. 19.
For additional information, please contact Anne Hydock at email@example.com or (440) 250-7041.
A good board of directors can be a great support for a top executive regardless of company size. The most common type of board offers advice; however, other boards act as fiduciaries, which have legal liability for the company’s practices – and thus are much more actively involved in overseeing the company. In either scenario, before establishing a board of directors, a small business owner needs to be clear about why he or she wants a board and what the owner is prepared to do to get maximum value from a board.
These steps can help with developing your board of directors:
1) Get prepared. Write down what you want them do, how much time they will need to commit monthly, how long you want them to serve, where you and the company need the most advice, and what are you willing to provide as compensation to board members – if anything. Many nonprofit boards don’t offer payment beyond lunch, but for-profit entities typically provide a quarterly stipend or payment.
2) Choose broadly. Many business owners draft friends and industry colleagues to sit on their boards initially. However avoid picking carbon-copies of yourself. Look for board members with diverse backgrounds and perspectives. It is useful to have board members from a wide range of fields, including legal, finance, accounting and marketing. Organizations such as the U.S. Small Business Administration’s SCORE program of retired business executives and The Alternative Board can connect groups to potential board members.
3) Orient the board. While board members may be familiar with your organization or products, they may have only a broad understanding of your operations. Therefore, it may be useful to provide orientation for incoming board members to cover organizational structure, functional duties for each division and division head, a brief description of each product/program/service that includes its target market, as well as pie charts that display major revenue streams and expenses.
4) Share authority. Many entrepreneurs conceive and build a company according to their liking and their understanding of the customer. Owners and managers should run the day-to-day operations in alignment with the board policies. A good board will encourage the development of processes for rationally researching, analyzing and assessing all aspects of the company. Moreover, few board members want to give up their time to meet to essentially rubber-stamp every executive decision.
5) Reassess your board periodically. What you need today to help your business flourish may not be what you’ll need in three or five years. As you periodically conduct mid-term strategic planning, you should review the skills and resources presented by each board director in light of where you want to take the company. Don’t be afraid to disband and redesign your board.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.
"Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness.“ W.H. Murray
Last month we discussed how to make the right choices in life and business. We talked of positioning ourselves as business leaders in such a way that we make good, solid choices.
This month, I would like to follow up that article with one concerning commitment and business. Will the two topics complement each other? I believe the answer is yes. In fact, I see the topics as dependent on one another.
Here is my premise: When we work through the process of making a choice and we lack commitment to that choice, ineffectiveness is sure to follow.
First, a few assumptions I hold related to commitment:
- Commitment is more than a head game.
- Commitment is positive.
- Commitment itself is a choice.
- Commitment flows from powerful leaders.
- Commitment is the driving force needed to push our choices into reality.
Now let’s fledge out each of these assumptions.
Commitment is more than a head game.
While our commitments start as a thought process, they cannot stay in our head. One way to state this is:
Commitment is a verb – it’s an action word.
Deciding to commit to a choice is only the beginning – now comes the real work. We must act on our commitment to that choice or, as I said earlier, ineffectiveness is sure to follow.
Commitment without action is worthless. When we have done the due diligence and made a right choice, we must act for that choice to have:
Commitment is so much more than a head game. It involves action.
Commitment is positive.
When business leaders decide to make a commitment to a goal, plan, strategy or new direction, they have made a positive decision.
Let me try to draw the timeline out a bit:
The leader has painstakingly worked through all the considerations needed in order to make a right choice.
The leader now makes a conscious commitment to that right choice and moves out in action related to the commitment.
The choice and the commitment are going to have a meaningful, powerful, results-oriented impact on the leader’s business.
That is positive. When we follow this series of actions, no matter what the outcome, the result is positive. This realization can help us as leaders to see our role and our work in a very different light.
Commitment itself is a choice.
This might seem obvious, but it is important for this reason:
Not committing to a choice that has been deemed “right” is a sure and certain way to open the flood gates of ineffectiveness in our business. Not committing is a choice we make to not do the right thing, the best thing, and the needed thing to move our business forward.
Simply put: committing or not – we make a choice – the difference is very important when it comes to good business.
Commitment flows from powerful leaders.
This is true, but the statement does not go far enough. In my estimation, real, powerful leaders are the ones that can make a choice, commit to that choice and take direct, intense action related to the choice.
This ability flows naturally from powerful leaders. It is second nature to the way they conduct themselves, their teams and their business. It is fun to watch it unfold.
Commitment is the driving force needed to push our choices into reality.
Each time we make a choice we are setting a goal that wants to be achieved.
As Mack R. Douglas reminds us that the good news is:
“The achievement of your goal is assured the moment you commit yourself to it.”
Commitment is the vehicle—the force—that drives our choices from concept to reality. The power of a simple commitment has transformed many leaders and their respective businesses. Without that power, I have seen business after business and leader after leader flounder and fail.
I think commitment is lacking in so many areas in our society these days. In developed and free nations, people are blessed with the ability to make choices, but often we lack commitment.
In business we are confronted with the need to make right choices on a minute-by-minute basis. Each leader and team member is charged with making choices as a significant part of their daily activities. Those choices then require a commitment. This is the game we play in the workplace and in life.
The process is really simple if you think about it: Make a choice. Commit to the choice. Act.
Are you ready?
DeLores Pressley, motivational speaker and personal power expert, is one of the most respected and sought-after experts on success, motivation, confidence and personal power. She is an international keynote speaker, author, life coach and the founder of the Born Successful Institute and DeLores Pressley Worldwide. She helps individuals utilize personal power, increase confidence and live a life of significance. Her story has been touted in The Washington Post, Black Enterprise, First for Women, Essence, New York Daily News, Ebony and Marie Claire. She is a frequent media guest and has been interviewed on every major network – ABC, NBC, CBS and FOX – including America’s top rated shows OPRAH and Entertainment Tonight.
She is the author of “Oh Yes You Can,” “Clean Out the Closet of Your Life” and “Believe in the Power of You.” To book her as a speaker or coach, contact her office at 330.649.9809 or via email firstname.lastname@example.org or visit her website at www.delorespressley.com.
Lois Kelly is the author of “Beyond Buzz: The Next Generation of Word-of-Mouth Marketing.” She offered her ideas about the top types of stories people like to talk about. If you’re pitching your company to investors, customers, partners, journalists, vendors or employees and you don’t use at least one of these storylines, you probably have a problem. And, most likely, you’re too close to what you’re doing, so you think that you’re uniquely “patent-pending, curve-jumping and revolutionary.”
1. Aspirations and beliefs. More than any other topic, people like to hear about aspirations and beliefs. (This may be why religion is the most popular word-of mouth topic, ever.) Aspirations are helpful because they help us connect emotionally to the speaker, the company and the issues. They help us see into a person or company’s soul.
2. David vs. Goliath. In the story of David and Goliath, the young Hebrew David took on the Philistine giant Goliath and beat him. It is the way Southwest Airlines conquered the big carriers, the way the once unknown Japanese car manufacturers took on Detroit and the way social media is taking on the media giants. Sharing stories about how a small organization is taking on a big company is great business sport. Rooting for the underdog grabs our emotions, creates meaning and invokes passion. We like to listen to the little guy talk about how he’s going to win and why the world — or the industry — will be a better place for it.
3. Avalanche about to roll. The mountain is rumbling, the sun is getting stronger, but the rocks and snow have yet to fall. You want to tune in and listen to the “avalanche about to roll” topic because you know that there’s a chance that you will be killed if caught unaware. This theme taps into our desire to get the inside story before it’s widely known. It’s not only interesting to hear someone speak about these ideas, but they also have the ingredients for optimal viral and pass-along effect.
4. Contrarian/counterintuitive/challenging assumptions. These three themes are like first cousins, similar in many ways but slightly different. Contrarian perspectives defy conventional wisdom; they are positions that often are not in line with — or may even be directly opposite to — the wisdom of the crowd. The boldness of contrarian views grabs attention. The more original and less arrogant they are, the more useful they will be in provoking meaningful conversations.
Counterintuitive ideas fight with what our intuition (as opposed to a majority of the public) says is true. When you introduce counterintuitive ideas, it takes people a minute to reconcile the objective truth with their gut assumption about the topic. Framing views counter to how we intuitively think about topics — going against natural “gut instincts”— pauses and then resets how we think and talk about concepts.
Challenging widely held assumptions means that when everyone else says the reason for an event is X, you show that it’s actually Y. Challenging assumptions is good for debate and discussion and especially important in protecting corporate reputation.
5. Anxieties. Anxiety is a cousin of the avalanche about to roll, but it is more about uncertainty than an emerging, disruptive trend. Examples of anxiety themes abound: 1.) Financial services companies urging baby boomers to hurry up and invest more for retirement: “You’re 55. Will you have your needed $3.2 million to retire comfortably?” 2.) Tutoring companies that plant seeds of doubt about whether our kids will score well enough on the SATs to get into a good college. Although anxiety themes grab attention, go easy. People are becoming skeptical, and rightly so. Too many politicians and companies have bombarded us with FUD (fear, uncertainty and doubt) with no facts to back up their point.
6. Personalities and personal stories. There’s nothing more interesting than a personal story with some life lessons to help us understand what makes executives tick and what they value the most. The points of these personal stories are remembered, retold and instilled into organizational culture.
7. How-to stories and advice. Theoretical and thought-provoking ideas are nice, but people love pragmatic how-to advice: how to solve problems, find next practices and overcome common obstacles. To be interesting, how-to themes need to be fresh and original, providing a new twist to what people already know or tackle thorny issues like how to get IT and marketing organizations to work together despite deep culture clashes between the two.
Here’s a good exercise for your team. Have them read this column and then answer the question: What storyline does our marketing currently use? Then, if you’re brave enough, ask the question: What storyline should our marketing use?
Guy Kawasaki is the co-founder of Alltop.com, an “online magazine rack” of popular topics on the web, and a founding partner at Garage Technology Ventures. Previously, he was the chief evangelist of Apple. Kawasaki is the author of ten books including Enchantment, Reality Check, and The Art of the Start. He appears courtesy of a partnership with HVACR Business, where this column was originally published. Reach Kawasaki through www.guykawasaki.com or at email@example.com.
The number of seismic changes in the way business is done during the past 10 to 15 years is unprecedented. Just ponder the magnitude of all that has occurred as you read this list: Cell phones became ubiquitous, and computers with 24/7 Internet access moved from the strident screechy tones and beeps of telephone dial up to today’s broadband connections that transmit huge amounts of data in seconds, resulting in virtually everyone being constantly connected.
Instead of getting the latest news at 11 p.m. and sleeping on it, we now receive a constant stream of information in real time. Reaction time has moved from digesting the myriad of hard copy reports that awaited you at the office each morning to now making decisions simultaneously with that first sip of morning coffee while reading data on a smart devise.
In addition, the era of easy money is also long gone, along with what seemed to be extraordinary and unlimited growth where the average company would do just fine, propelled by a rising tide of good times.
The tragedy of Sept. 11 jolted the world permanently, altering the way people live and think about the future. There are no more givens that one will grow up, go to school, get a job, have a family and live happily ever after. Two major wars have lingered beyond anyone’s worst expectations. Then came the economic meltdown of 2008 when the wheels came off the wagon and the music stopped playing while everyone frantically searched for too few remaining chairs. With the stock market crash and the banking/lending meltdown, even the most sanguine turned jaundiced toward their views of government, business and what the future holds.
Even those businesses naively ensconced in their fairytale cocoons realized it was no longer business as usual. What worked for years would no longer move the needle. Customers’ attitudes and loyalties could no longer be taken for granted as businesses acknowledged that future success and prosperity could well be the exception, rather than the rule.
Does this mean that everything that we’ve learned in the past has gone swirling down the drain, including basic business principles and practices that were sacrosanct?
There are no pat answers to deal with almost revolutionary metamorphoses, if you don’t change, you most certainly will become a victim of change.
Welcome to the new ‘now.’ If you’re leading an organization today, you must devote the majority of your time and efforts to looking ahead and trying to find the answers before your competitors even know the questions. Change has become how we must do business. What worked for your company previously is, at best, a fleeting memory overshadowed by the customers’ mindset of “What have you done for me today?” In short, there are no guarantees other than you’ll have to continuously get better or be gone.
A scary thought? It all depends how you approach this new reality. With changes come new opportunities, new ground rules and the ability to find a better way and deliver that better way more efficiently and effectively.
So how do you go about preparing for the future? Certainly use all of the new tools that are at your fingertips. Instant information on the Web is available to all of us with a few keystrokes directed at a growing number of sophisticated search engine. Data that took weeks and months to gather can now be gleaned in minutes or hours. While Americans are graying as the over-50 crowd mushrooms, don’t ignore the young who know only this new way of life. Does this mean you should add a few 14-year-olds to your board? Maybe not a practical idea, but be sure you’re at least talking to a couple of them on an ongoing basis. Ideas come in many forms, many times from the most unlikely.
You must retrain your team to challenge virtually everything and find a better way, envision products, goods and services that no one knows they even need yet, and create a strategy to deliver them compellingly and creatively.
Will there continue to be business casualties? You bet. Much more importantly, however, there will be many business successes for those companies led by visionaries who answer that morning wake-up call each day with an open mind to the new now.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
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If you’ve been running a business for some time, then I’m sure you know some CEOs who are struggling to keep their business going or have already closed their doors.
In some cases, the cause might be the economy. Maybe they were in an industry hit particularly hard and were crippled by the drop off in sales or maybe a large customer folded or took its business elsewhere.
The most troubling aspect in many of these situations is that the person in charge didn’t necessarily do anything wrong. The leader made all the right calls and did everything by the book but still ended up with a struggling business.
After you’ve been running a business for a while, you realize that even doing everything right doesn’t guarantee success. The harshest lesson to learn is that you can’t control everything and bad things happen to good people and good companies.
The real test for many begins not with how they deal with success but how they deal with setbacks. Most have never tasted defeat before, and it can be a difficult experience. One day they are the CEO of a successful and respected company, and the next day they are sitting at home wondering what they could have done differently. The experience can be depressing for some and overwhelming for others.
But there’s a saying that as one door closes, another opens, and that certainly holds true with business. If you find yourself in the situation of leading a struggling business, you need to approach it as a challenge. Don’t waste time lamenting what could have been; focus your energy on what could be. Maybe you need to tweak your business, or maybe you need to completely reinvent your company, but the key is to do something.
Take McDonald’s for instance. In the early 2000s, the company was distracted by multiple acquisitions, a massive expansion plan and a menu cluttered with items consumers didn’t necessarily want. The stock price dropped to $12. The company reinvented itself by returning to its roots, divesting of the distracting side businesses and revamping its menu and restaurants to appeal to consumers. The results changed the perception of McDonald’s from a restaurant in decline to the undisputed king of the industry with a stock price in the $80 range.
Another example is IBM. The company was saddled with low growth after trying to dominate the consumer and business hardware and software segments, and its stock dropped to $10. The leadership refocused the company on business software, a few key business hardware components and IT services. It now dominates the business IT services category and its stock commands almost $200 per share.
While you may not be as large as IBM or McDonald’s, the point is that business is constantly evolving. Sometimes it means getting back to your roots, and other times it means abandoning one line of business in favor of another.
Take a hard look at your company and think about what you could do differently. Are there some product lines that are better than others? What if you focused on your core products and did them better than anyone else? Can you follow the lead of McDonald’s or IBM to chart a new course?
If it’s too late for that, look at your current situation and find a new path to success. You led a successful business once, so you can surely do it again. Reach out to friends and colleagues to find out where the opportunities may be in the market and think about a way they could invest in your new venture. You never know who may be able to lend a helping hand. One door may have closed in your career, but with some entrepreneurial thinking, the help of some friends and prayer, another will open. The best is yet to come.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or email@example.com.
A few weeks ago, I met with a member of our new business development team who had been on the job for a week or so. A few days before the meeting, I started jotting down notes about the message I wanted to convey and the points I wanted to make. These notes are the basis for my column this month.
There were seven points I wanted to stress to help the new team member be successful in our organization. Since my notes were a little cryptic, I will not only list them but expand on what they mean.
1. 900. My belief is that everyone has 15 minutes, or 900 seconds, of extra time during the day. Nine-hundred seconds where they have nothing to do; 900 seconds of basically free time.
For me, you need to take advantage of those 900 seconds and get better at something every day. It doesn’t matter if it’s gaining better computer skills or becoming a better presenter, just as long as you get better at something every day.
2. A new best friend. This was not only easy for me, but it’s essential. You need to make LinkedIn your new best friend. Since LinkedIn will be your new best friend, you need to spend time with it and get to know it. You need to understand the value of the tool and the power it has.
I truly believe if you aren’t using LinkedIn every day as a business tool, you are not as successful, efficient or smart as you could be.
3. Uncover hidden jewels. No, this isn’t about “Storage Wars.” (Even though I love that show, it isn’t what I’m referring to.) Every company has hidden jewels.
The question is: Where are they located? Where is that great proposal hiding? Who can fill you in on the company history, and who has the best value proposition that will help me sell our products and services and turn prospects into clients?
4. Get off to a quick start. I truly believe that if you get off to a quick start in the morning, you’ll accomplish more during the day. If you get off to a quick start prior to 8:30 a.m., this will be a springboard for a successful day.
People tend to feel good about themselves if they make things happen as soon as their day starts.
5. Each “no” gets you closer to a “yes.” Sales is a numbers game. Every time you get a no, even though it might hurt or upset you, it will get you that much closer to a yes and a new client.
6. Be a creature of habit. Without question, I am a creature of habit. I get in to the office and leave at the same time almost every day. I eat oatmeal at the same time, and I check the revenue of the company as soon as I arrive. The quicker you get into a routine, the better off you will be.
If you are in new business development, set aside the same time in the morning and afternoon to call prospects. Call your friends back at lunchtime when it might not be the most productive time.
7. You’re only alone if you want to be. This point is very important — especially if, like our new team member, you work at home. It’s very easy to bury yourself in your job and try to figure everything out yourself. Don’t do that. Stay connected to your office.
When your technology isn’t working perfectly, don’t try to fix it yourself. Call your IT department. When you’re responding to a proposal, if you have writer’s block, call a team member. Don’t struggle for hours. Remember, time is money.
Incidentally, the reason I had seven points was not that I couldn’t think of another few. My belief is that there are too many top 10 lists, and a top seven list would have a better chance to resonate with our new team member.
Merrill Dubrow is president and CEO of M/A/R/C Research, located in Dallas. The company is one of the top 25 market research companies in the U.S. Dubrow is a sought-after speaker and has been writing a blog for more than four years. He can be reached at firstname.lastname@example.org or at (972) 983-0416.
How Chris Maguire led SRS Real Estate Partners through a crisis by going back to basics and taking small stepsWritten by Peter Fehrenbach
Talk about getting hit with severe hardship right off the bat. In 2008, SRS Real Estate Partners split off to become a standalone company when its parent, Staubach Co., merged with another real estate firm. Then, a month later, the U.S. financial crisis began and flipped SRS’s world upside down.
“We sold all of the Staubach Co. assets to Jones Lang LaSalle except the retail business,” recalls Chris Maguire, SRS’s chairman and CEO. “We closed the sale in August 2008. We were just starting to adjust to life without Staubach. Then we got hit with the financial crisis.”
Virtually all U.S. business sectors were affected by the subsequent recession, but two markets that suffered especially abrupt, deep and lasting cuts were real estate and retail. And those markets are SRS’s bread and butter.
“In the real estate industry, I think anyone would tell you that of the four food groups, the retail business got hurt the most, because it’s led by consumers, and consumers got hammered,” Maguire says.
“When retailers shut their pipelines down in September and October 2008, it resulted in dramatic revenue declines for our business. Our brokerage business, peak to trough, was off 60 percent. And that went on for about two years before we were able to stabilize our business.”
The downturn was a rude shock for SRS. The company found itself thrown back on its heels with business drying up and bad economic news coming from all directions.
“We weren’t sure where the world was headed, much less how we were going to adapt our business,” Maguire says. “It was a scary, unbelievably uncertain time for our business.”
Get back to basics
As SRS’s revenue began to take a dive in the last quarter of 2008, the company’s leadership team members got together and circled the wagons. The threat level they faced was hyper-urgent. They had to find a way to rally their staff and stanch the bleeding.
“The first six months was the worst,” Maguire recalls. “Today, I remind our people all the time about that: Don’t forget how bad it was from September 2008 to March 2009. We really didn’t know what was going to happen to our business.”
The first thing SRS’s leaders recognized they had to do was to guide the company back to the basics of what had made it successful during the two decades-plus that it had operated as a unit of Staubach Co.
“What we realized we had to do was drill down to our core business,” Maguire says. “And our core business at SRS is transactions. We receive fees when transactions are executed. As long as transactions are taking place, that’s how we get paid.”
The financial crisis slammed the retail sector hard, and SRS began feeling the reverberations immediately.
“It was unlike anything I had seen in my career,” Maguire says. “We started seeing retailers who for years had been growing their business by opening new locations not only shut down their new-growth pipelines, but they also were scrambling to figure out how to get out of some of the deals they’d previously committed to.”
Therein, though, lay a key to SRS’s chances to reverse the tide and get back on its feet. Transactions were still taking place in the retail real estate business. It’s just that they were transactions of a different type than the Staubach Co.’s retail division had been used to seeing in normal economic times.
“We were clearly going from a period of growth to a period of contraction,” Maguire says. “That meant our clients were going to need help on the disposition side — getting rid of dark stores, restructuring existing leases. And our landlord clients were going to be doing a similar type of thing: Trying to figure out how to lease their centers in a very uncertain economic environment.
“So we knew the market was going to be difficult for growth. As a result, we had to focus on where the transactions would be. We had to shift from being a business focused on retailers growing to a business focused on retailers shrinking.”
Manage tough transitions
While SRS’s leaders and staff members knew retail real estate transactions were out there, uncovering them proved to be a tough learning curve for the company.
“It was rocky,” Maguire says. “Really, for 24 months, it was very tough going for us.”
Exacerbating the business problems were issues of insecurity related to SRS’s parting with its longtime parent company.
“We were not only dealing with an uncertain economic environment and a continual stream of bad news as it related to the consumer and retailers, we also were dealing with a company that for 22 years had been part of the Staubach organization and was now split off on its own,” Maguire says.
“So we got the double whammy there. It was hard enough going through an economic period that none of us have ever experienced, but to compound it, we were trying to teach our people that life is going to be OK without Staubach.”
The former football star had been an inspirational business leader, and many in the company found it difficult to adjust to having new leaders.
“It was hard for some people to grasp that, for it to sink in,” Maguire says. “Roger was an incredible leader. He had a great reputation. Being part of that company was important to people. And, well, I’m not Roger Staubach; I don’t have a Heisman in my trophy case. But I’ve been in this business for a long time, and our management team has been together for a long time.
“So we had to focus on the details, and on stabilizing our business. We had to focus on teaching our people how to deal with the market and the realities of where the transactions in the retail business were happening at that time, which were very different than where they’d been for the last 20 years.”
During the recession’s deepest depths, staff morale was a particularly tough issue to deal with for SRS’s leaders.
“We’re in a business where most of our people on the SRS side are independent contractors,” Maguire says. “They’re brokers that get paid commissions. It was hard to motivate them, as well as our own employees, when all they read in the papers every day and all they watch on TV is bad news. They walk into the office with their head down every day.
“We had to find a way to show them that, ‘Look, you can’t think about this day to day. You’ve got to ignore the bad news. You’ve got to come in here and focus on what you need to get done. We’ve been doing this for a long time. We’ve been through a number of cycles, and we will get through this. But it’s going to be tough, day to day. It’s going to be a marathon.’ And that’s clearly what it turned out to be.”
Focus on the achievable
For a few months, Maguire and his leadership team found their own morale running low, and that made it extremely difficult to motivate their staff. They learned that they would have to dig deep to find reserves of strength and hope within themselves.
“It was hard because none of us had ever experienced a downturn like this,” he says. “There were times early on when I stood up in front of our company and said, ‘Look, we’ve got to focus on our core business; we’ve got to focus on our history and our track record and the fact that there will be transactions there; if we do these things, we’re going to be OK’ — and for about six to eight months, I’m not sure I even believed it. But I had to get up there and project a positive attitude.”
Concentrating on taking small steps and improving the company’s standing little by little was an approach that began to turn the tide for SRS.
“There was nothing we could do at that time that was going to dramatically slow the decline in our revenue or stop retailers from shutting stores and from shutting off the new growth,” Maguire says.
“So we had to focus on small, achievable goals and wins. I looked at the situation and said, ‘Any progress we can make day to day is important.’ At the beginning of the downturn, five out of five days in the week were bad days. My goal initially was to just find a way to have one good day a week, then two good days a week, then three good days a week.
“Even in good times, not every day is going to be a success, and you’re going to have problems. But we really had to get our people focused on, ‘OK, what are you going to do today? How can we make a difference with these clients who we’ve had long-term relationships with, who still need our help — they just need it in a different way?’”
Not everyone was able to adapt to the new business realities that SRS faced. Some of the company’s longtime staff members found themselves unable to make the transitions that needed to be made.
“We had some people who had rode the wave for a decade,” Maguire says. “They were surfing a wave that was cruising along, and all of a sudden, that wave hit the rock shore and was gone, and those people got up in the morning and said, ‘What are we going to do?’ Our management team’s message to them was, ‘There are transactions out there. These retailers need our help. But you’ve got to get out and you’ve got to be proactive.’ And I’ll be honest with you: We had a number of people that had been very successful with our company that couldn’t hack it. And they had to go do something else.”
Communicating with staff is a tough thing to do when all of the news coming at you is bad, and Maguire concedes that he didn’t communicate very well at the beginning of the crisis.
“It was hard for me early on,” he says. “I like to communicate a plan: Here’s what we’re going to do, here’s our goal, here’s how we’re going to get there, here’s how the company’s doing financially.
“But everything was really uncertain. And I think probably one of my biggest mistakes early on was not communicating up front and talking about all the bad things — the bad news, the uncertainty. I had to work through that.
“My management team and others encouraged me to spend more time talking about those things: ‘Look, these are the challenges, and frankly, if this revenue decline doesn’t stop, we’re not going to have a business. So here’s what we’re facing. Let’s figure out how we can overcome it.’”
Thus, Maguire says a key piece of advice he would give CEOs facing a similar predicament is to be transparent and to convey all of the news clearly from the outset.
“Communication is the most important thing,” he says. “And not just the good news. Not just, ‘We have a plan.’ It’s much more than that. It’s, ‘Where is our business today, really? Where do we stand? Good, bad or ugly, let me know where we stand.’ And then, ‘Let’s put a plan in place to fix it.’
“One thing I’ve learned that I’m not sure I really appreciated before is that employees really want and need to know. I was concerned that if I give them too much bad news, they’re going to curl up and not be able to accept it. But the reality is people are smart and they deserve to know the real news, not just the CEO rah-rah.”
Eventually, haltingly, after rocky transitions and some shakeout, the U.S. retail business began to recover. And SRS’s business began to grow again as well. The 350-employee company now has about $45 million in annual revenue.
“For us, stabilization came when we saw the bottom,” Maguire says. “Our revenue flattened out, and then we started seeing growth. In fiscal 2010, we grew our business at just under 10 percent. Then for fiscal ’11, we were at 12 percent. And this year, we think we’ll be at 15 percent or so.
“Historically, our target has been 20 percent growth. As you get bigger, it becomes harder to hit that level because the numbers are bigger. But for us, we’d love to get back to 20 percent. It’s a bit of a stretch for us right now, but that’s our goal.” <<
How to reach: SRS Real Estate Partners, (214) 560-3200 or www.srsre.com
THE MAGUIRE FILE
Name: Chris Maguire
Title: Chairman and CEO
Company: SRS Real Estate Partners
Born: Trenton, N.J.
Education: University of Texas at Austin
What was your first job, and what business lessons did you learn from it?
My first job was delivering newspapers here in Dallas. It forced me to be accountable. I had to be there every morning on my bike picking the papers up and putting them on the doorsteps of all the people in the neighborhood, because if you didn’t deliver, they weren’t happy.
Also, we had to go out and knock on doors and collect the monthly fees for the papers, and some of those people were hard to collect from, but if I didn’t collect, I didn’t get paid. So that was some early insight into how the business world works.
Do you have a business leadership philosophy that you use to guide you?
In our business, you have two things you have to protect at all costs: your reputation and your relationships. If you do that, and you build a track record, you’re always going to do the right thing.
What trait do you think is most important for an executive to have in order to be a successful leader?
You’ve got to have vision. People want to work at companies that are going to grow, that are exciting, and that can be leaders in their industries. And in order to have that, you have to have a vision that’s not Disneyland. It has to be a vision that you can actually achieve over time.
What’s the best advice anyone ever gave you?
Roger Staubach had a lot of good advice. One thing he said that has stuck with me over time is “There’s no traffic on the extra mile.” It’s about putting in extra effort and working a little harder, because most people don’t do it. Hard work doesn’t necessarily ensure success, but it goes a long way toward achieving it.