James Taylor and Arun Pasrija, Ph.D., remember well when the company they founded, CHR Solutions Inc., acquired another business a few years ago — and two of the acquired executives were a bit hostile with each other.
But Taylor and Pasrija were no novices at acquiring and merging other businesses with their telecommunication technology solutions company. Throughout an eight-year time span, they acquired or merged 12 companies. CHR Solutions now has 530 employees and annual revenue of $61 million for 2011.
This particular situation, however, demanded a resolution that was nearly a total makeover.
“Two senior executives at two major locations were at war with each other,” says Taylor, chairman and CEO of the company.
“They just refused to deal with each other. They refused to cooperate, didn’t want to talk to each other, and all they were doing was destroying value.”
Part of the reason that both executives voted in favor of the acquisition was to prevent the other from being in charge anymore. They reasoned that by becoming smaller fish in a bigger sea, so to speak, neither would be a leader.
“As part of the solution, we had to work with the senior executive who owned a big portion of that challenge,” Taylor says. “The other person had basically given up trying — but he owned much of the problem, too, for having given up.”
What Taylor and Pasrija did amounts to an attitude adjustment, mental makeover and reassignment.
“We revised the other executive’s role, took him out of his assignment where the conflict was, reshaped and remodeled him, and he then worked directly with us at a senior executive level on strategic items; we really reshaped his attitude and his involvement,” Taylor says.
After a length of time, the situation had not only been resolved but a new chapter was unfolding.
“It took about three years to rehabilitate the relationship and redevelop mutual respect and trust, and, frankly, I think we went even further — I think we helped them re-establish some of the friendship they had before,” Taylor says. “The guy who was causing problems is actually back today working for the guy who he swore he couldn’t work for and the other guy swore he couldn’t work with.”
“We just couldn’t walk in and leave it alone like that,” says Pasrija, president and COO of CHR Solutions. “So we addressed it, and I think it worked out pretty good because it gave both of them some space initially so they were not interacting with each other. Then it improved to the point where they appreciated what the other party brought to the table.”
Taylor notes separating the parties was the first step of the solution.
“We had to take the pressure off first,” he says. “We had to take them out from reporting to each other or one of them reporting to the other, and we had to start educating. I think there was some ego relative to that as well as I don’t think the hostile exec fully understood the situation. Part of that rehabilitation process was that as he participated more closely with the senior execs of the organization, he got a perspective about the decisions we were making and why we are making them, and he had a chance to catch his breath and feel like he was adding value.”
One of the major points that hit home was that the executive needed a behavior change in order to be a successful leader.
“It’s not about right or wrong; it’s about changing to be successful,” Taylor says. “We were firm with him: ‘If you can’t change, we can’t correct this and you can’t be here.’ That’s a pretty significant conversation about a guy’s career and his life and the 25 years he spent investing in the company and the industry that he is in.”
The moment of truth came, and he met the challenge head-on. It paid off.
“He actually told us at one point that he had never had the coaching that he was receiving from us,” Taylor says.
“Once an executive is reshaped, it creates alignment right at the people,” Pasrija says. “People see the issue, the senior guys realize that there was an issue at the senior level, and the improvement gets amplified all the way down.”
But it’s not unusual during the acquisition process when executives are being vetted that you find some leaders who haven’t received professional executive training. That’s where the acquiring company has to step in.
“Many times, these guys in smaller companies, they don’t have what I will call professional leadership. What they have is 25 years of first-year experience,” Taylor says. “I don’t mean that in a negative way. Technicians — borrowing the term from Michael Gerber’s ‘The E-Myth’ — may be very, very competent at the business and technical aspects of what they’re doing, but they’ve not done HR management or leadership development, they’ve not run bigger organizations, and they don’t know how to manage conflict.”
Taylor feels a weakness in leadership training may be the cause for some companies to hit a financial brick wall.
“There is a reason many small entrepreneurial companies get stuck at a $5 million, $10 million or $15 million size, and the reason for that is the depth of management,” Taylor says. “That’s only what management can handle. You’ve got to think differently — it’s a different capital structure. It’s a different leadership structure. It’s a different investment you make. It’s a different way you manage.
“We’ve got to help them with the additional skills they need to run the business in a different way and a different level.”
Here’s how Taylor and Pasrija focus on enhancing employees gained through an acquisition or merger — and existing staff — to tap new levels of success.
Look for more talent, not less
There are several criteria that have to be met when a company makes an acquisition or merger. Geography, adding to the product line and creating an attractive client list are examples. In addition, the leadership team should have some similar values.
“You can think of a business almost like a mosaic, made of all the small little stones that build a picture,” Taylor says. “Look for things that add value, that fill in parts of the mosaic, whether it be a product, people, geographic reach, whether they be of the size and scalability that they offer or whether they bring long-term clients.
“But look for things that you can integrate and that the leadership team buys in and understands your vision because you are not looking to write checks and send a bunch of people home. Look for more talent on the team. I believe you can never have too much talent. I never get up in the morning and say, ‘Oh gosh, I wish we didn’t have so much talent.’”
Pasrija says he believes the most important criterion is spending time during integration with the management team and making sure the new faces can be part of the broader team.
“From the personality perspective, that will make or break the deal,” he says. “All the other things are important but are actually kind of minimal. You want to make sure the product is a right fit, but beyond that, you have to focus on integration, which takes a lot of time, so you are just comfortable to have these teams that can integrate and be part of each other.”
It’s better to integrate rather than incinerate, Taylor says. But it may not be the case for all industries.
“As you integrate companies, a lot of people want to do burnouts,” he says. “We don’t like burnouts. Burnouts mean don’t integrate. So the idea of burnouts is to try to protect your purchase price versus some of the functions you have made.
“We think the trade-off on burnouts is worse than the downside created by not integrating, particularly in the services area. Now that could be different in the manufacturing business or something else, but particularly in the services business, that is just a very specific thing we go through.”
Getting employees to integrate in one culture for one company in one version is a key to success, Pasrija says.
“You need to present one company to a customer or client,” he says. “They don’t really care whether there were two, three or four companies in their history or there are offices in different states. It’s one company helping them solve their needs. And that model will help their clients succeed.”
Learn to rank the entrepreneurs
Before you attend to reshaping or re-educating executives acquired in an acquisition or merger, there needs to be an honest appraisal of their talents. You will save yourself some time and effort if you evaluate the entrepreneurs in three categories or stages. Meet with the person to try to establish what stage of an entrepreneur he or she is.
“Stage I is that he or she is Superman or Superwoman,” Taylor says. “They can leap buildings in a single bound. They have a great big S on their chest. That big old S stops bullets, and everything’s good, right?
“Well, the reality of those people is they kill companies. If you go back to the ’90s and look at all the sales, mergers, acquisitions and the dot-com roll-up, they were all supermen and superwomen. If they are Stage I, run away. Don’t walk.”
The second stage involves some qualities of the first but with more self-awareness of strengths and weaknesses.
“If they are Stage II entrepreneurs, they woke up and realized that it’s just a T-shirt and it doesn’t stop bullets,” Taylor says. “But they say, ‘You know what? I’m kind of achy. My stomach is upset. I have a fever. I have a headache.’ The diagnosis is that you have the flu, and they say, ‘No no, just give me some Tylenol and send me back in, coach.’
“The problem with that is Stage II entrepreneurs cost money. They take bigger zigs and longer zags than you need to have. The problem with a zig and a zag is that the more out of a straight line you are, the longer it takes and the more money it takes. Sometimes with the right Stage II person, you can bring him or her into Stage III. But go cautious on Stage II. Really understand where they are; understand the culture that they have created.”
As you may expect, the perfect candidates are the Stage III hopefuls. As troops parachute into a combat zone and hit the ground running, so do Stage III entrepreneurs.
“Because of their time frame, some people who have led the business before are immediate Stage III entrepreneurs,” Taylor says. “Some get there in a very short time, some are super bad for 25 years. The Stage III entrepreneur gets there and says, ‘OK, how do I do this run? What’s the right thing to do?’ They can check their ego aside, too.”
Invest in developing leaders
One of the things both Taylor and Pasrija benefited from in their careers was a leadership development training program. Taylor received training from Sears, and Pasrija from Lucent Technologies. It gave them the impetus to create a leadership development program for current and acquired employees at CHR Solutions. The program has graduated 60 future leaders since 2008 when it was founded.
“We believe we can actually create talent from inside,” Pasrija says. “Not that we couldn’t have gone out and hired executives. We wanted to invest to create a pool of potential leaders. It’s good for the morale of the employees; it’s good for us because we develop comfort and trust in them.”
The company selects 20 to 25 employees each year to be so-called “special leaders.”
“They’ve demonstrated leadership behaviors and quality,” Pasrija says. “We believe it is worth the investment, and some of them for sure will be able to take much, much bigger roles down the road.”
The program, which costs $60,000 to $70,000 a month to operate, is a two-step process.
“One is a formal kind of a mini-executive MBA if you will, where they go through classes for the course of a year,” Pasrija says. “It is held from 7 to 9 in the morning every other week — two hours of a lecture, classwork and homework assignments.”
Classes are held on sales and sales processes, marketing, product management, finance and accounting, understanding cash flow, balance sheets, income saving, why it is important to focus on net terms for a contract, working capital and other concepts.
“We have to manage change,” Pasrija says. “That’s a big feat. Crucial conversations: how to have a hard conversation with your peers, with your employees, your managers and, sometimes, the client.”
The “students” go through all the processes and then undertake a final assignment. They are put in charge of a fictitious company with a senior leader and their team, and they are given a scenario, much like a case study.
“Here’s what’s going on, here are the financials, here are the industry situations and you plan for business and the events that will happen,” Pasrija says. “Then you go back and figure out what would you do and what is the impact. Then they work on it for a couple of weeks and make a presentation to the entire management team.”
“After completion, they are sort of fast-tracked for opportunities and given much higher preference in promotions,” Taylor says. “This is very, very formal. We spend thousands and thousands of dollars doing this every year — we think it is that important.
“If you’re going to grow large business, you have to be able to create the appropriate discipline and infrastructure to exactly achieve the very way and be very profit-driven. That’s part of the culture of who you are and what you are doing.
“That’s hard to achieve if you think about it for a second. Think about that versus a freewheeling entrepreneur who started his own small business. A large part of that cultural change and educational process is to bring them into what it takes to be a much larger business.” <<
How to reach: CHR Solutions Inc., (713) 995-4778 or www.chrsolutions.com
James Taylor, chairman and CEO, CHR Solutions Inc.
Arun Pasrija, president and COO, CHR Solutions Inc.
Pasrija: Pune, India
Taylor: West Plains, Mo., so I’m a hillbilly. I’m from a foreign country as well!
What was your first job?
Pasrija: My first job was actually at a motorcycle factory. It was a summer job assembling 150cc bikes made by the Escorts Group.
Taylor: I’m trying to remember when I didn’t work. I used to cut firewood, pick rocks, bale hay and work in different stores. It’s a great thing for kids to learn how to work and do things.
Whom do you admire in business?
Taylor: I admire Bill Gates, Larry Ellison, Michael Dell and Steve Jobs — they created something from nothing. It’s about the entrepreneurial spirit. They got ‘out of the box.’
Pasrija: I admire Warren Buffett. I’ve read a lot of his books, and I always read his annual shareholder letter. His way of getting the big picture, keeping it simple, making sure the right people are doing the right things and honesty and integrity behind his business — I really have a lot of respect for what he has accomplished.
What was the best business advice you have given or received?
Pasrija: We’ve assembled a very strong team. Always keep telling your team, ‘We can do anything we want but we cannot do everything we want. We need to figure out what to focus on.’
Taylor: I was once told early in my career that too many people are afraid of hard work. People try to do the quick and easy. Many entrepreneurs give up and quit or only were business people because they are afraid of the hard work, and the reality of it is that some of the stuff, you just have to grind it out.
What is your definition of business success?
Pasrija: If you have a client who is happy with the product or services you are selling, the employees love to come to work every day and are excited, and their shareholders are happy to see the value of the enterprise going up every year. I think that’s success.
Taylor: We’ve had the luxury of focusing a little on the ball where it needs to go. I think that’s part of what has caused some loss in America for things such as research and development, the loss of some of these key long-term strategic things. That doesn’t mean that we’re not focused on profitability, but you’ve also got to balance that with longer-term success. That’s difficult as you are consuming cash at the rate that you grow, and you continue to make investments. We want employees to be happy and do things but it also means that we have to be competitive. It’s a sign of hard work, balance and vision.