One of the toughest transitions for any organization is succeeding the founders. “Founders” could mean those who started the company, those who created a visionary product, those who worked tirelessly to prove a new concept or those who gave birth to a corporate initiative that transformed the organization.
Regardless of whether it’s the entrepreneurial brains and energy behind starting a company or the creative ideas of an exceptional employee or team, making the handoff between initiator and executor is pivotal — and very difficult to do well. Just ask any venture capitalist what worries him or her the most about his or her investment. Or ask any CEO of a large company why he or she suffered through failed product introductions — or why the CEO is navigating the next program du jour.
What is it that makes the handoff so perilous?
The short answer is the relentless sense of ownership by the founder, or founders, for ensuring success and all of the behaviors that go along with that. Those who give birth to something become intertwined with its success or failure. It is part of how the founders become defined and known and they work tirelessly and do whatever it takes.
But given that the ultimate success and sustainability in nearly all cases is achieved by nonfounders who implement the ideas, strategies or organizations they inherit, how can we improve the likelihood of the baton not being dropped in the handoff? Here are some proven ways that go beyond the obvious.
Ensure that the person hired to implement has passion for the cause. Even the most talented leader can’t fake “love” — and nearly all entrepreneurs are in love with their creation and will do whatever it takes to ensure its success.
Often it is the passion and energy of the leader that infects others inside and outside the organization with excitement and motivation to go above and beyond.
Ensure the successor has the skills and credibility to lead. Would you have a smoker implement your health and wellness strategy? Would a leader who drives a large SUV be your pick to lead a “go green” initiative?
A leader may have important skills, but if he or she lacks visible loyalty to “the cause,” employees will see that and be negatively impacted. There is no substitute for the leader walking the talk when no one’s looking.
Arrange for the new leader to receive mentoring from or continued access to the founder. Boundaries on both sides need to be respected, of course, but founders can provide invaluable history and counsel. They may be the one person who truly understands what that leadership role entails and uniquely help the new leader accordingly.
Require the successor to replicate before he or she innovates. Too often there is a rush to “put my stamp on everything.” But if it wasn’t broken when you got it, don’t break it — yet. Learn quickly by replicating what worked under the founder.
Then channel the observations, learnings and new capability to leapfrog the product/organization forward — benefiting from a base of deep understanding and infusion of new insights and capabilities.
Plan for succession from the outset. The biggest test of a start-up company or a new initiative comes when the founders move on. It is really successful only when it is led/championed by those who didn’t launch it.
So, don’t treat succession like it’s the elephant in the room. Treat it as though the future depends on it.
Leslie W. Braksick, Ph.D., is co-founder of CLG Inc. and author of “Preparing CEOs for Success: What I Wish I Knew” (2010) and “Unlock Behavior, Unleash Profits” (2007). Braksick advises top executives, their leadership teams and boards of directors on issues of strategy execution, leadership effectiveness and organizational performance. She can be reached at firstname.lastname@example.org.
If you are a business owner, key manager or employee of a company going through an organizational transition, such as a merger or leadership change, it is likely you will experience performance disruption caused by confusing messages, speculation or lack of information. And you are not alone.
Often the planning for these important events happens behind closed doors with only the owners and advisers, leaving everyone else to speculate about the future.
Ricci M. Victorio, CSP, CPCC, managing partner for Mosaic Family Business Center, says business owners can avoid these challenges by being more transparent about upcoming changes and engaging everyone in the process.
“The key is communication, communication, communication. It’s important to identify what you can control and learn how to be flexible with all the rest. When you’re getting ready for a transition or succession, you might feel like you’re surfing a tidal wave. There’s an art to keeping your balance in an ever-changing world,” she says.
Smart Business spoke with Victorio about how to prepare yourself and your company for major business transitions.
What are the most common stumbling blocks that occur when a company is heading for change?
The most common stumbling blocks typically center on communication. Today’s older generation grew up learning to keep financial affairs close to the vest. So sometimes even a spouse doesn’t get involved in the planning until asked to sign papers.
Other times, people don’t feel comfortable sharing their ideas and concerns during shareholder meetings because they’re afraid of disrupting the artificial harmony that’s been established. They may have private conversations outside of the boardroom, but during meetings there’s often a fear of disrupting the delicate balance.
Further, business owners involved in a transition can be so overwhelmed by either the fear of confrontation or the lack of planning, the project begins to loom large and they’re stopped in their tracks. They feel as if there’s no way they can get through it; it becomes so daunting they often just hope it goes away.
How can these stumbling blocks be avoided?
Instead of keeping all conversations behind closed doors, when appropriate include key players such as family members, managers and those who will be most involved in the strategic design of the transition plan before you start actually planning. In these conversations, ask the group, ‘If we could do anything without worry of failure or confrontation, what would be best for our family and company?’ At this stage, there should be no pressure of commitment; it’s just brainstorming and idea building.
Engaging a succession coach can help facilitate dialogues that are creative, innovative and energizing, and potentially serve as the foundation of solutions to what might seem like an impossible endeavor.
Once you have a vision, you can develop an implementation plan. Break it down into a timetable and get key players involved to determine who spearheads specific initiatives and what the outcomes should be. Document the vision and itemize each step to be executed on a schedule for all involved.
Owners and other decision makers in a business likely won’t find it easy to facilitate these discussions, so consider using an experienced adviser to guide and focus the conversations and break the task into manageable segments. It can be difficult and even intimidating for groups to internally identify and discuss their own problems, but it’s helpful to have someone from the outside keep discussions open, comfortable and inclusive.
It’s also important to reach out to the overall organization, including employees, clients, customers, franchisers and vendors to communicate the vision of the plan — not the intricacies, but the expectation of the fulfillment of the plan and how it affects each party. This will help clarify what each can expect and what their roles will be.
What are the red flags that tell you a transition is going badly or not as planned?
Confusion or dysfunction within the management team is one of a few signs of difficulty that typically arise during a transition. Often it’s revealed that management is unsure where the company is going or what the plan is. Additionally, departments that are not cooperating well with each other — also called ‘silos’ — can typify dysfunction.
If management isn’t confident that the transition will include them, their productivity will slow and they’ll likely start looking around for something more stable and secure as a backup plan. A high level of turnover in management might prompt others to start abandoning ship.
When is a good time to seek outside counsel?
The best time is when you know or others are imploring you to consider that it’s time to begin succession planning. For any business owner between the ages of 45 and 75, if you have a business that is worth perpetuating, you need a long-term strategic succession plan and a short-term contingency plan to protect it. It’s worth bringing in an adviser who can help you with both kinds of plans. You’ve got to think beyond your own needs because your business has so many people tied to it who count on its success.
All of the planning responsibility doesn’t have to be on you. You can pull people into the transition process and get them enrolled so you’re no longer alone in the endeavor. If or when you do step aside, you can do so knowing you have people there to maintain and even grow the business. The hearts of those involved in the company might be broken when a founder passes or moves on, but that creation, built lovingly, does not have to crumble.
Ricci M. Victorio, CSP, CPCC, is managing partner for Mosaic Family Business Center. Reach her at (415) 788-1952 or email@example.com.
Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners
Over the past five years, layoffs have become an undeniable fact of life for millions of Americans, and even today as we slowly recover from the great recession, layoffs continue. For example, in June, there were 4.3 million total separations, according to the Bureau of Labor Statistics.
And as painful as they may be, layoffs are sometimes necessary to allow a business to reorganize or restructure to remain viable. If they are not handled correctly, however, a reduction in force could be devastating to the future of a company. Research done after the economic downturn in the 1990s found layoff survivors had high levels of distrust and lower levels of motivation. In addition, absenteeism increased and productivity decreased.
“The keys to effectively managing a layoff are planning, communication and treating people with dignity,” says Jerry Miller, vice president, marketing, at Executive Career Services. “Your goals should be to preserve morale and the intellectual capital of the organization and to avoid litigation.”
Smart Business spoke with Miller about how employers can mitigate the negative effects of layoffs when they become necessary.
What role should planning play with managing layoffs?
Planning encompasses numerous areas, so you need to first understand the reasons for having the layoff in the first place. What do you hope to accomplish? You need to determine what the company will look like going forward — post-layoff.
Then you’ll need to decide which positions are going to be eliminated and why. Also, how much notice will be given and what type of severance packages and other benefits will be provided, including outplacement assistance? While you don’t want the legal department to drive the layoff, you need to know the relevant laws and understand all the legal ramifications. Some of the more important laws to be concerned with include The Worker Adjustment and Retraining Notification Act (WARN) and laws dealing with age and other forms of discrimination.
Finally, and very importantly, you’ll want to formulate your communication strategy, both during and after the layoff. Once the planning process is complete, move swiftly. Don’t drag things out. Word travels fast in an organization and you want to stay ahead of rumors.
How does a good communication strategy look during a reduction in force?
Once the implementation phase begins, communication should be wide and frequent. A critical component of this phase is the notification meetings, which should be conducted by the immediate supervisor or department head, and if the meeting is expected to be especially sensitive, a representative from human resources. This is not a time to delegate. It is critical that these managers, particularly if they have never delivered a layoff notice, be coached in how to conduct the notification meetings. If you are using an outplacement firm, it will be able to provide this type of coaching.
What do managers and department heads need to keep in mind during a notification meeting?
Information packets should be prepared in advance with all the necessary information. Expect that impacted employees will likely be in a state of shock after learning of the job loss and much of what is said afterward will not be heard or understood. They need information to take with them to read when they are finally able to process the bad news. Notification meetings should be private and take place as early in the workday as possible on a day that is not immediately prior to a weekend, a holiday or a planned vacation.
The impacted employees must be treated with dignity and respect. They will share their experience with survivors, and if they are not treated appropriately, it could have a very negative impact on those remaining. Managers should imagine themselves on the other side of that table and treat their exiting employees as they themselves would like to be treated. Be brief and direct in the notification meeting. Anticipate emotional reactions and be prepared to deal with them. Don’t engage in small talk or allow your anxiety to cause you to say something to ease the immediate situation that can’t be lived up to. Explain that positions, not people, are being eliminated. You want to be sensitive to the employee’s situation but direct and firm, making sure he or she knows the decision is final and non-negotiable. Tell employees how much you appreciate their work and thank them for their contributions. Finally, direct them to the next step in the process.
How should an employer handle the remaining employees?
Oftentimes a company is so focused on the layoff itself that it loses sight of the impact on the survivors, but doing so can cause significant problems later. This is where leaders need to lead. Meet with the remaining employees to discuss the layoffs in an honest and forthright manner. Share the latest company news with them and commit to keeping them informed. Acknowledge their emotions and give them time to deal with them, but not too much time — don’t allow them to engage in endless carping or complaining. Work must go on. Managers should lead by example. Be positive but also realistic. Discuss the workload and how it will be distributed, perhaps even asking the team what they would recommend. Keep lines of communication open and check in regularly with individuals. Above all, be available to remaining employees. Don’t spend time in your office with the door closed.
Remember, how you treat people matters, to those impacted as well as to those who remain. If you plan effectively, communicate openly and often, and treat people with dignity and respect, a layoff can be done with minimal disruption and little or no negative impact on the organization going forward.
Jerry Miller is a vice president, marketing, at Executive Career Services. Reach him at (949) 251-5600 or firstname.lastname@example.org.
Insights Human Capital Solutions is brought to you by Executive Career Services
For business owners and entrepreneurs, wealth management and planning is not a project, it is a process.
“It’s something you never complete; it’s ongoing in nature,” says J. Harold Williams, CPA/PFS, CFP, president and CEO, Linscomb & Williams, an affiliate of Cadence Bank.
He says that too many people approach wealth management erroneously, thinking, “I’ll get a financial plan done and check that off my list.” However, financial planning is much like designing a blueprint for a house, building it and maintaining it — a process that never ends.
Smart Business spoke with Williams about how to lay the foundation of your financial future while transitioning out of business ownership.
What actions are important for entrepreneurs before year-end in light of the expiring tax provisions such as the $5 million gift and estate tax exemption?
There is a unique condition in 2012 where you can gift, during your lifetime, tax free, just over $5 million. Business owners generally have some complexity to their estate planning, in that ownership of their business is their predominate asset and it is illiquid, which makes it difficult for estate planning purposes.
This special provision in 2012 allows you to transfer a significant portion of your wealth during your lifetime in a way that the future growth on the amount that you gift is not going to be counted in your estate.
For example, if you have a successful family business worth $20 million and you expect that its value will grow, it is possible to take a partial interest in that business this year, as much as $10 million of the value, and gift it into a trust for your heirs. If you gift half of it in 2012 and the business value doubles, the doubling of value in the half that you gave away would not be counted as part of your estate when you die.
There have been a lot of discussions about what the estate tax rate will be in the future. Right now, the estate tax rate is 35 percent, so if you can move appreciation to the next generation and not have it taxed, the result could be a savings of 50 percent of the amount that is transferred. That is a powerful planning concept.
If business owners are considering selling their business, how do they gauge financial security to be sure the income they had previously been earning is adequately replaced?
It is common for business owners who are about to sell, or have just sold their business and are walking away from an attractive paycheck, to begin wondering how they will replace that paycheck.
Before you sell the business, do some planning to confirm that you can sustain the lifestyle you have enjoyed while relying upon a more traditional portfolio of investments. When the business is liquefied, you pay some tax and need to invest the money.
It is likely not possible to get the same returns on an investment portfolio that you got from the business, so it is important to run the numbers and recruit someone who can help you determine the various contingencies. Doing this before you sell the business will allow you to engineer some things into the structure of the selling contract to enhance your ability to sustain your lifestyle.
Are Family Limited Partnerships (FLP) still being used as an estate planning tool, and what is the IRS’s attitude about this?
They are being used, and most cutting-edge estate planning attorneys recommend them as a viable vehicle. FLPs are not particularly loved by the IRS, but they are effective if done right. The main thing is to stay involved with your FLP; don’t just begin one, make a file and put the file away. The IRS could potentially scrutinize an FLP because it gives you a discount on the business interest connected to the estate or gift tax return. It will look to see if this has substance and form.
It is important to be diligent about keeping your records and following proper procedures when creating an FLP. When FLPs are not generating the estate tax savings that are desired, it’s often because the originator paid for a lot of documents to be created and didn’t live with them and make them part of the ongoing planning.
To do it properly means careful coordination with the lawyer who will draft the documents, the accountant who will advise you on tax law and other tax matters, and the wealth manager or planner who helps design the plan on the front end and maintains it on an ongoing basis.
Considering all the new 401(k) plan disclosure rules being issued on plan fees and expenses, how can a business owner avoid the risk of personal liability and make sure they don’t unintentionally violate these requirements?
For business owners, this is a bit of a minefield. In some cases, you might not realize you’re walking through it until it blows up. Generally, regulators look for a good-faith climate of compliance. The important thing is to document everything appropriately and leave a clear trail that shows you are trying to be in compliance.
The government often has a more favorable attitude if it can see you are trying to comply. It doesn’t want to see neglect, so intent goes a long way. It’s an area where, depending on the size of your 401(k) plan, you may need legal counsel to advise you on those policies and procedures.
J. Harold Williams, CPA/PFS, CFP, is president and CEO, Linscomb & Williams, an affiliate of Cadence Bank. Reach him at (713) 840-1000 or email@example.com.
Insights Banking & Finance is brought to you by Cadence Bank
Often, business owners frame their own future in stark, binary terms — either I keep the business or I sell it. This binary thinking becomes most pronounced as business owners begin to contemplate retirement or an ownership transition. In reality, there are a variety of options that can span those two outcomes. For many business owners contemplating a retirement or transition event in the next five years, simply keeping or selling are suboptimal outcomes — either tying up critical value that could otherwise be used to diversify or foregoing the potential upside value in their business. In addition, these binary outcomes often overlook other important value drivers for business owners such as legacy, succession, well-being of current employees and the continuity of their current business. When evaluating which options to pursue, it is critical for business owners to first establish clear goals that define what they want to accomplish and when. This includes an honest assessment of their personal and professional desires and other value drivers (including those mentioned above). While these options each present unique opportunities and risks, they offer business owners a more tailored and optimized approach to achieving their future liquidity, retirement or transition objectives. Mezzanine debt recapitalization A mezzanine recapitalization will often allow business owners to seek partial liquidity or growth capital, without significantly diluting their ownership. Business owners can use the proceeds to diversify their holdings, while retaining equity control and the potential upside of the business. However, this option will add incremental, high coupon leverage to the business and could limit operational flexibility in periods of economic or business distress. ESOP — employee stock ownership plan ESOPs allow business owners a tax efficient roadmap toward partial or full liquidity while creating a mechanism for transferring ownership to employees. This allows business owners to maintain short-to-medium-term ownership and helps to preserve business consistency and legacy. It also rewards employees for their hard work and loyalty. However, once the ESOP has been established, it can significantly restrict ownership flexibility. MBO — management buyout MBOs allow business owners to achieve either partial or full liquidity while maintaining operational consistency throughout the organization. The MBO also rewards management’s loyalty and performance with the opportunity to acquire a significant stake in the business. However, MBOs often require management to partner with outside equity or debt providers — which can be time consuming and introduces new partners and influences on the business. Minority investment Minority investments from an outside investor (either institutional or individual) will allow business owners to seek partial liquidity, or growth capital, while maintaining a majority stake in the business going forward. The minority partner can bring valuable outside perspectives and skill sets to supplement your own. However, most minority investors tend to be only passively involved and often require onerous ratcheting provisions that could give them control if the business fails to meet operational objectives. Partnership transaction A partnership transaction will allow business owners to seek significant immediate liquidity while preserving some ownership and elements of control in the business going forward. Business owners can use the proceeds to diversify their assets, while maintaining potential upside in the business. The new partner can bring many valuable strategic and financial resources to bear to strengthen the business and pursue growth and value enhancement initiatives. However, new partners will seek elements of control and often utilize leverage to affect the partnership. Understanding the many options available to business owners will help lead to more tailored and optimal achievement of personal liquidity, retirement and transition objectives. Josh Harmsen is a principal at Solis Capital Partners (www.soliscapital.com), a private equity firm in Newport Beach, Calif. Solis focuses on disciplined investment in lower middle-market companies. Harmsen was previously with Morgan Stanley & Co. and holds an MBA from Harvard Business School.
When people are looking at business ownership, they are in one of two positions. Like my story, I’d say about 15 percent are just coming out of college and are full of a “taking on the world” attitude.
But that segment is certainly the minority. The substantially larger group, from my experience, does so because they were forced to. Most people say they would like to own a business, but the truth is that most people never start one. It’s only because of a layoff or downsizing that they ultimately say they don’t want another J-O-B.
Like me, most entrepreneurs have found starting out in business to be much harder than originally thought. However, reaching this stage of business ownership, it’s much more rewarding — both financially and emotionally.
Whether it is adding a new brand to your holdings, adapting an existing operating model, or making leadership changes in your organization, I want to share four strategies that have helped me over the past three decades:
- Have a plan. You don’t know if you’re achieving success unless you have a written plan. This allows you to organize your vision and outline strategies to achieve your desired results. Secondly, the act of planning helps to make you accountable to tracking your progress against your goals. Remember, it is not uncommon for plans to require updates as conditions change. I was asked recently if my career looks the way I predicted it would when I began at 24 years old. It’s entirely different, but that’s OK!
- Be determined. An unbelievable amount of determination is required to be successful in business. There are unimaginable road blocks that creep up, whether you’re starting a new business or you’ve been established for many years. The ability to have a goal and adjust to conditions such as competition, the economy and technical advancements showcases your positive mindset on achieving your set goals – even if the pathway to get there has to change.
- Recruit a board of advisors. Having a group of professionals whose judgments and recommendations I trust and treasure has been crucial to my business success. Look at the areas where you struggle and look for skill sets you need help with in finance, insurance or marketing. Go after high-level experience in the areas you need help with. It’s amazing to me that when I started in business, by just asking someone a question, they were willing to help. I have asked people at the top of their industries to give me an hour a month and they happily agreed. I’d tell them what was going on in my business and then listen to their advice. Share your written plan from step one with those who are willing to hold you accountable.
- Amass enough working capital. Having enough money, from launch to break-even, is important for a new venture or strategic investment in your business. I’ve learned that whatever number you have in mind, you should double it. I like to compare working capital in business to the space shuttle. In business, it’s money and with the space shuttle, it’s fuel. If you only put three quarters of fuel in shuttle’s tank, it will only go three quarters of the way to orbit, which would have a horrific ending. The same is true in business. You must have enough working capital to get the business into orbit. In business, orbit equates to cash flow, breakeven and producing a profit so the business becomes self-sustaining, and in space, it means free travel in zero gravity. Enjoy the ride!
David McKinnon is the co-founder and chairman of Ann Arbor, Mich.-based Service Brands International, an umbrella organization that oversees home services brands, including Molly Maid, Mr. Handyman, 1-800-DryClean and ProTect Painters. To contact him, email firstname.lastname@example.org
There are many ways that small and medium-sized businesses can find themselves facing financial difficulties that lead to trouble in their commercial lending relationship. When this happens, many times business owners become paralyzed, shutting down and failing to communicate with their lender. While that is understandable, it is the wrong thing to do, says David M. Hunter, chair of the Real Estate Practice Group for Brouse McDowell.
“When a business anticipates that it is entering a period of financial challenge, one of the first things it should do is get competent legal counsel,” says Hunter.
Often, business owners only do this as a last resort. However, retaining knowledgeable counsel early on allows you to obtain practical pointers when there is often greater flexibility to negotiate an agreeable outcome, he says.
“Once a lawsuit is pending, things become much more difficult to negotiate, even with a lawyer involved,” he says.
Smart Business spoke with Hunter about how to work with your bank to preserve good relations during difficult financial times.
When a company realizes it may be headed for financial difficulties, what should it do first?
Small and medium-sized businesses typically have a large file that contains the underlying governing documentation when the business took out the credit facility. In the event that your business is slipping into financial turbulence, locate that file and review the terms and conditions of your loan.
However, most businesspeople are overwhelmed by the paperwork. This is a good reason to get counsel involved early. Your counsel will determine the secured or unsecured position of your lender. If your loan is secured, what are the assets that secure it and what are the current valuations of those assets? Is the loan in default? If not, what is the time period you project you could make the required payments and otherwise adhere to the terms of the loan agreement?
How can an attorney help?
A good attorney either has knowledge to assist a borrower facing a potential loan default or is with a firm with others who have knowledge of the federal bankruptcy law protections or other approaches that would aid a borrower facing an approaching problem.
Once you have secured counsel and discussed the issues, the next step is to contact your lender. Bankers appreciate knowing that a borrower is alert to the problem and wants to collaborate with the bank to address it or explore what remedial options are available.
Business owners often believe that banks want to seize a borrower’s property or shut down a borrower’s business. No bank really wants to do that. If it is reasonably achievable, banks want to rehabilitate nonperforming loans and transform them back into performing loans that pay as agreed. They want to lend money to borrowers that use loan proceeds effectively and to create an improved economic performance for the borrower, which will allow the borrower to repay the loan.
Are there risks in alerting a bank of a potential missed payment?
Some businesses, regardless of efforts taken to head off financial difficulties, can face a situation in which the next loan payment might be missed. No bank will think unkindly of a call from a borrower saying an upcoming payment might not be paid timely. Some borrowers might worry that if a bank finds out about a potential missed payment, an awful consequence will be triggered. But if that is the impulsive reaction you receive from the bank, you are likely dealing with the wrong bank.
However, after 90 days of delinquency, the loan will likely go into a nonaccrual status — a consequence which immediately and negatively impacts the bank’s earnings. This is a more serious situation. If you alert your bank early enough, it will likely work with you to find a solution. But it gets more difficult to take these steps the longer a borrower waits.
At what point does this become a legal issue?
There are legal issues every step of the way. But these become more acute when the evolving facts empower a lender to take steps that can disrupt a borrower’s business. Many loans contain a cognovit provision, a tool a bank can use if a loan is in default. This authorizes a bank to obtain an expedited judgment against a borrower. This expedited judgment can quickly empower the bank to attach the bank accounts or levy upon the assets of its debtor.
It’s important to communicate with your bank before such a provision is implemented in an effort to find a way to augment the terms and conditions of the loan to give the borrower a window of opportunity to make payments. This often leads to the creation of a forbearance agreement — a mutually agreeable written understanding between the bank and its borrower as to how the parties will treat this troubled loan. Forbearance agreements customarily provide that as long as the borrower adheres to the agreement, the bank will refrain from pursuing certain remedies, such as obtaining or enforcing a cognovit judgment.
Preservation of value should be paramount for both the borrower and the bank. Under potential default circumstances, borrowers and banks can do things that can negatively impact a business’s value, and banks know that. If a bank acts aggressively to prompt a forced sale of assets, often the value realized when the assets are sold will be reduced.
Before a borrower gets to that point, the borrower would be well advised to work with a lawyer and devise a strategy to deal with the situation. Often, the owner and lawyer can come up with a plan of payment and present it to the lender. If the plan is reasonable, many times the lender will be receptive.
What are some other potential resolutions?
There is often relief available in bankruptcy. But its practical effectiveness hinges on the size of the company, as the pursuit of such a remedy can often be cost prohibitive. Chapter 11 cases, for example, can come at a high cost and be labor intensive. But a Chapter 11 filing can make sense in certain circumstances.
David M. Hunter is chair of the Real Estate Practice Group for Brouse McDowell. Reach him at (330) 535-5711, ext. 262, or email@example.com.
Insights Legal Affairs is brought to you by Brouse McDowell
MyCorporation has always reminded me of a Russian nesting doll — it is a business that helps other business owners start their business. Along with being a tad complicated to explain, this puts me in a unique position as its CEO. I have to be an expert in starting a business, which is an inherently risky venture. I’ve seen great ideas crumble and silly concepts flourish.
I’ve seen the most dedicated become beaten down and weary after only a few days while those who were at first noncommittal to the whole “running a business thing” grasp and cling to their company through every hurdle and hardship.
So when people ask me for my No. 1 piece of advice, all I can say is “protect yourself.” You may be able to influence sales, marketing, reviews and customer satisfaction, but you cannot control them. The amount of protection you give yourself and your business is something you can control. So why would you skimp on something as rudimentary as protecting your intellectual property?
Of course I know exactly why so many people skip filing trademarks and copyrights. It costs money and can be a bit complicated. New business owners keep track of every single cent that they spend — I know I did. You don’t know if you’ll even be able to break even when you first start out, so why would you want to send a fat check to the United States Patent and Trademark Office so early on?
Well, you should. I’ve had plenty of clients who have failed to protect the trademark or brand they spent so much time building. They always say the same thing — that once they are making more money, they’ll think about filling out the paperwork. Then, out of the blue, a competitor is using their intellectual property. And that same competitor has filled out paperwork with the USPTO.
It may sound like a campfire story, but it really does happen. We aren’t talking about million-dollar corporate behemoths here. This kind of thing happens between the smaller guys whether it’s two tow-truck drivers in the same town, a couple of restaurant chains or a pair of small Internet start-ups.
Typically, no one involved has the money to bring an infringer to court and prove that they were the first ones to use that particular image or name. So the infringer gets the trademark protection and the infringed has to start from scratch. It’s annoying, and a bit underhanded, but it happens.
Trademarks and copyrights are a lot like insurance — everything is fine until you need it. Then, if you don’t have it, the costs are astronomically higher than what you would have spent on the policy in the first place. “But it won’t happen to me,” you may say, scoffing at the prospect of filing protection for your little brand.
Maybe it won’t, but what if it did? Would you be willing to put as much blood, sweat and tears into building the same level of respect and trust for your new brand? It might not even be a question of would you — it might be one of could you.
We sometimes forget, or choose to block out, how much effort it took to really get our businesses started. It takes a lot out of a person, and I’m not sure if I’d be able to devote that much of my focus and energy again if the original object of my efforts was stolen.
So here is my mantra, repeated to every new business owner seeking my sage wisdom: Protect yourself early and thoroughly. Don’t wait until it is too late, or you have a bit more money or whatever other excuses you might have come up with.
Protect your business, your intellectual property and your future sanity now.
Deborah Sweeney is the CEO of MyCorporation, an online filing services company that specializes in incorporations and LLCs. Find her online at mycorporation.com and on Twitter @deborahsweeney and @mycorporation.
This past March, the Cleveland Greater Partnership held its annual meeting to discuss issues the economic development organization has been working on the past year as well as new initiatives it is looking to support in the city. Among the issues discussed, the biggest focal points were United Airlines’ hub at Cleveland Hopkins International Airport and plans for developing Cleveland’s lakefront.
“Today, we see great things happening all around us,” says Christopher Connor, GCP chairman and chairman and CEO of The Sherwin Williams Co. “There is an absolute palpable energy and momentum in our region and I’m absolutely convinced that we are standing on the cusp of great decades to come. But it’s going to take a lot of hard work. This work requires much heavy lifting, but the rewards can best be described as transformational and truly game-changing.”
One of the most important issues expressed by GCP members and others in the community has been protecting Cleveland’s United hub at Hopkins International Airport. As one of about 20 cities in the country with hub service, Cleveland offers more than 70 nonstop destinations, nearly 250 daily departures and access to single-stop international travel.
“The airport and the hub provide more than $4 billion of economic activity to our region on an annual basis,” says former GCP Chairman William Christopher. “The hub is absolutely critical to retaining, growing, and attracting businesses to the region, but the dynamics of industry consolidation and profitability across the industry have put and continue to put pressure on the hub.”
Maintaining a hub in the region is at the top of GCP’s priority list. As a result, a task force has been created to work with the mayor and Director Ricky Smith to make sure the hub doesn’t leave Cleveland.
“The task force has … five major objectives: the first being to increase the size of the pod — the more people who travel out of Cleveland the more opportunity to have traffic for United,” Christopher says. “The second one is to make sure that United has profit. No. 3 is improving the cost effectiveness of the Cleveland hub. No. 4 is to provide advocacy on support of key United and Cleveland hub issues. No. 5 is to continue promoting our hub in other key swing markets.”
Since the task force was started, Jeff Smisek, president and CEO of United Continental Holdings Inc., has visited Cleveland three times to see what progress has been made.
“If I contrast how Jeff’s engagement with us was at that first meeting … to how he was at this last meeting, which was in October of this last year, the change has been dramatic,” he says. “We sold Jeff on the fact that we understand this, are willing to fight for it, and have strong fundamentals that are going to influence the size of the market here and their opportunity and ability to make money. Principally, that’s been around $9 billion of investment that’s going into the community. To be able to get Jeff to sit down with us for an hour now three times almost every six months tells you that he’s absolutely interested in making this a success.”
During this year’s meeting, William Christopher passed the chairman duties onto incoming chairman, Christopher Connor, who discussed one of the biggest game-changers the GCP is looking to support — further development of Cleveland’s lakefront.
“For years Cleveland has been shaped by the city’s location along the shores of Lake Erie, from our very first settlers to investments that are under way today,” Connor says. “Despite the historical utilization of this great natural aspect, we still have a disconnect, both physically and psychologically between our city and our waterfront, particularly along the downtown shoreline.”
The city’s latest plan utilizes about 90 acres between the west side of Cleveland Browns Stadium and the western end of Burke Lakefront Airport for potential development. The proposal places offices, residential, retail, dining and an entertainment component in order to enhance existing investments in the Rock Hall, the Science Center and the stadium.
“To address the connectivity issues that we have between the waterfront and downtown, the Group Planning Commission has advanced a plan that provides accessibility through the construction of an iconic pedestrian bridge connecting our mall to the harbor and enhancements to East Ninth Street from the northern edge of downtown to Voinovich Park and the provision of additional parking,” he says. “The Greater Cleveland Partnership will play our role both along Lake Erie and the Cuyahoga River. As part of our strategic planning process in 2011, waterfront development was identified as one of GCP’s priority initiatives by our board of directors.”
How to reach: The Greater Cleveland Partnership, (216) 621-3300 or www.gcpartnership.com
It’s the big day. You’ve managed to score a meeting with one of the biggest companies in the world to talk about your brilliant, one-in-a-million business concept. You can’t wait to talk with their executives and share your vision for your ideas — ideas that are guaranteed to change the face of business forever, while earning billions of dollars in the process.
One problem. Unless you’ve been diligent in protecting yourself, you might well find yourself taken advantage of, or even have your ideas stolen altogether.
Sad to say, but there have always been people out there just itching to pick your brain and take your original thoughts without paying for them. Sometimes it’s inadvertent — they may not realize that your ideas have monetary value — and at other times it’s purposeful and with ill-intent. Either way, it’s important to recognize this reality and do everything you can to safeguard yourself.
Earlier in my career, I would often find myself in a meeting, and with my inherent enthusiasm (It’s for real, folks!), I’d elaborate on everything from product concepts to marketing and sales strategies. The next thing you know, the people I was meeting with would all be whipped into frenzy and we would verbally agree to continue the dialogue and develop our business plan in the weeks and months ahead. We’d have numerous phone calls and even some follow-up meetings.
And then suddenly … nothing. When I finally managed to get hold of them again, I’d be told they had changed their minds and were not going through with the project. Yet months later, I’d find they had actually gone ahead with the product without me — and using all the ideas I had given them in our meetings. Think I wasn’t royally peeved?
Because I knew that what I had to say was worth something, after this happened to me one time too many, I decided that I needed to start protecting myself. So here’s what I’ve learned to do now: If I’m coming to someone with an idea for a product I’ve developed, before I take the first meeting, I make sure I protect my ownership. I file for a patent, trademark or copyright — everything and anything that is appropriate for what I’m offering. I also ask the people that I’m meeting with to sign a nondisclosure agreement and make it very clear from the beginning that I’m prepared to protect myself.
This doesn’t necessarily mean that others won’t still try to take my idea without my permission — patents are worked around all the time — but it does mean that I have some leverage. Without it, I’d be dead in the water.
At the moment, I have a product line that I’ve been developing for several years, for which I have four or five patents, eight to 10 trademarks and 10 to 15 copyrights. These protections give my product value for a possible third party sale in the future. When you come right down to it, if I can’t protect the ownership of my product, it has absolutely zero value.
Besides my ideas for an invention or product are the thoughts I have for developing business strategies, which I present in a meeting or conference call. This is a more difficult situation because I can’t patent, trademark or copyright these ideas. Yet, the success or failure of the product or business idea will hinge to a large degree on how it is presented to potential customers.
These days I proceed with much greater caution that I ever did before. If I’m approached by a company that wants to meet with me because of my expertise in an area, I often charge an engagement fee upfront. I won’t share my best ideas until I know we have an agreement that protects me. Half of the money is paid up front with the balance paid out of royalties or perhaps as a straight licensing fee if we decide to go ahead with a product.
You’ll never be able to stop people from trying to take advantage of you. But whether you’re talking about your idea for a new product or the strategy for how to make it a success, keep in mind that what you have to offer carries genuine value, so never let your excitement override good judgment.
Tony Little is the president, CEO and founder of Health International Corp. Known as “America’s personal trainer,” he has been a television icon for more than 20 years. After overcoming a near-fatal car accident that nearly took his life, Tony learned how to turn adversity into victory. Known for his wild enthusiasm, Tony is responsible for revolutionizing direct response marketing and television home shopping. Today his company has sold more than $3 billion dollars in products. Reach him at firstname.lastname@example.org.