Dr. Padma Allen never intended to become an entrepreneur. It just happened.
Allen, a board-certified physician, was practicing internal medicine in New Jersey in 1998 when her husband, Reddy, left his job at Ernst & Young to found TechnoDyne LLC, an IT firm that provides a range of services to large public and private companies as well as government institutions.
“He thought he could provide more value to customers, so he asked me to help him out for a couple of weeks and take a two-week break from my practice to help him set up payroll, HR, secure office space and register his domain name,” Allen says. “I said, ‘Sure,’ and we were lucky enough to secure our first large project right away. My husband hit the field, and someone had to hold the fort at home. That turned out to be me.”
It wasn’t long before Allen’s two-week break became two months and then turned into a full-time job. Today, Allen, the company’s president and chief financial officer, has become a nationally recognized innovator in the IT services field. Her company was named a 2010 Ernst &Young Entrepreneur Of The Year in the Consulting Services category for the state of New Jersey.
Smart Business sat down with Allen to discuss how she helped take the company from startup to nearly $100 million in annual revenue in just over a decade.
What skills did you learn as a physician that you apply to TechnoDyne as an entrepreneur?
There are three. First is the ability to deal with stress. I was in one of the doctor residency programs in Harford Hospital in Connecticut and worked a lot in the emergency room. After that, I shifted to East Orange General Hospital in New Jersey. There were a lot of life and death situations that I was faced with. I saw cardiac arrest cases for many patients and saved many lives. Based on that, nothing that happens at TechnoDyne is a life and death situation. At the end of the day, nobody’s going to die here, so I’m able to work very well under stress — even the worst-case scenarios where a client may cancel a project. It’s not that stressful.
The second is the ability to work several hours without sleep. Residency training in the United States prepares you for that. We used to work 36-hour shifts.
Third is the ability to multi-task. When you’re a doctor, you’re doing numerous things at the same time. These three skills helped me alot in the early days of the company.
What were some of the early challenges of getting the company up and over the first hurdles?
Getting the initial team in place. For about a year, it was just me and Reddy. He was always outside in the field on client-related projects; I was always inside, managing everything that had to be managed. So moving away from that and getting the people in place was challenging, mainly because it was the first time I had hired people. So it was really about trust and me trusting they would do what needed to be done.
Then, by the time we started to be a viable business came the Internet bust. We were two years into the game and suddenly found ourselves facing one of the biggest challenges we’ve faced. Several of our competitors closed shop, and we were inches away from closing shop, too. But we hung in there, fought and stayed afloat.
At that point, we realized we had to have a different strategy, expand our business and work with different businesses. We needed to figure out how to be recession-proof.
How have you done that?
From 1998 to 2000, we were focused on the commercial sector — large enterprises in the commercial sector — because that was where the relationships were. When the economy changed in 2000 and 2001, we were literally looking on the ground for business. So we started looking at other markets and asked ourselves who we could work with who would be reasonably recession-proof. There was this big segment of the government sector and we said, ‘Let’s try this out.’
We stayed the course, got all of our certifications in place, and it was a long road. But once we got onto it, it’s turned out to be very good and helpful. They’ve been good clients. We work with 13 of the 50 states, providing technology solutions. We work with four agencies in the federal government, as well. Once you get to that point, where you’re a known quantity, government is a great customer to work with. And, given this most recent economic downturn, we weren’t as affected as many of our competitors were because we had expanded our market and diversified our client base.
How would you describe your value proposition?
From a TechnoDyne perspective, we have the pedigree of people from former Big Four and Big Five accounting firms, as well as people who come from large private sector industries and even some from large governmental agencies. But because we’re small, we’re much more nimble and our cost is lower. Our clients get the same quality of service that they may get from a much larger firm, but they get it faster, better and at a lower price. Today, we have 500 employees scattered across 13 states in the U.S.
Where do you find opportunities for growth?
We’ve been very conservative in the offerings we have to provide, given the economic cycles. So we look at where the customers are spending money. A couple areas we’ve identified for growth are virtualization of data centers and cloud computing, both on the government side and private sector side.
How have you forged relationships in the government space?
Coming from almost zero relationships when we started, my husband and I have built it one contract at a time. One thing that helped was being certified as a minority and woman-owned business. The government has good set-asides for those. That helped a lot. We do have competition — the big guys like IBM and Accenture — but we are able to get a piece of the project that we can deliver because of the minority set-aside. And, once we show what we can do there, we’re able to compete against the Big Boys for the larger contracts.
Looking back to 1998, what do you know today that you wished you knew on day one?
Having a board of directors very early on would have been a difference-maker. Today, we are reaching $100 million in revenue and still don’t have a board. We do a lot of it ourselves, but having a good board of directors of past CEOs would definitely be helpful. The second thing I wish I’d known back then was that I shouldn’t have been as conservative with cash. We were slow and organic with our growth. We didn’t want to take any loans from our bank or leverage ourselves. If I knew then what I know now, I probably would have mixed organic growth with leveraged growth.
Third would be getting a formal education in business. I finished my MBA last year but wish I had done it sooner. Your out look changes when you have a business degree from a good school.
How do you balance your dual roles of president and CFO?
As president, I am looking forward to how I can grow the company and take it to the next level, work with the CEO and how we can get to our billion-dollar goal in the next seven to 10 years. The entrepreneur in me likes when there are folks coming in with ideas that I want to launch to get us there. But then as CFO, the numbers need to make sense. So every time someone comes with an idea I need a business case, the numbers, etc., so I play two roles that constantly are internally colliding with each other. But it’s a healthy balance.
Let’s talk about the future. Where do you see yourcompany in the next seven to 10 years?
Reaching our billion-dollar goal. We have a pretty solid road map. What we’ve done is define our goal of where we want to be and then we work backward — what do we need to do now to get there? One is those items is that we definitely want to expand more in the government sector. If you look at the history of companies that have passed the billion-dollar mark in our space, between 60 and 70 percent of their revenues are from the government sector, especially from the federal government. We already are in that space, so we are looking to expand it further. We’re looking at which next big thing they want to get more involved with, and one is cyber security. With so many applications moving onto the cloud, there is definitely a big risk that needs to be addressed. Mobile security is another. We also want to expand our commercial sector.
How to reach: TechnoDyne LLC, www.technodyne.com
Although the economy is slowly recovering, businesses across many industries are continuing to struggle and, in many cases, fail. While some sectors are improving more rapidly than others, times are still tough for mid-market companies.
The rapid changes and continuing uncertainty in health care are putting significant pressure on health care providers, as they are not prepared to adapt as conditions change and access to capital remains difficult, says Stephen M. Gross, Detroit managing member of McDonald Hopkins PLC.
Similarly, although the automotive industry is posting record profits, this is primarily limited to OEMs and very large suppliers that reduced debt in chapter 11 and that have access to capital. But for the small to mid-market automotive supplier, the battle continues.
“Owners of companies need to be conscious of the events impacting their businesses, be ready to accept reality and be willing to employ different strategies if they are going to preserve value in these unique times,” says Gross. “They cannot refuse to acknowledge the business’s situation until alternatives no longer exist. Early intervention is the key to making the best of a bad situation. They need to understand and analyze their financial and legal situations to determine which strategies are most beneficial for their constituents.”
Smart Business spoke with Gross about how to preserve the value of your business in a still-struggling economy.
What are the issues facing small and mid-market businesses?
Three factors are present in financially distressed situations. First is change, whether it is the loss of a customer, a rapid increase in material costs, or a gradual reduction in sales. Second, and perhaps most important, is the inability of management to quickly acknowledge the change, realize that doing business as usual will not work, and implement financial and legal strategies. Third is a lack of access to capital, whether to bridge the gap, fund a ramp-up or consolidation, or acquire competitors. This does not mean getting capital to fund losses; it means funding for a strategy that is well thought out and likely to succeed with minimum risk.
What strategies are available to businesses in distress?
That depends on where the business stands in terms of product, market, liquidity and debt level, as well as when it recognizes the need to address an issue. For example, an auto supplier needs to understand that the supply base will continue to shrink and suppliers that provide commodities will have a difficult time due to price pressure. If the supplier has access to capital, this is a good time to acquire other suppliers, especially those with a market niche that can be purchased on favorable terms due to their distress.
However, if the supplier lacks access to capital, it is time to consider selling the business while it still has value as a going concern. Too many managers think only in terms of keeping the business going, instead of preserving value for owners and other constituents. While most business operators intuitively opt to restructure and survive, this is easier said than done, especially after losses have continued for any length of time.
In these cases, the lender has lost faith in management and begun to limit funding, suppliers are reducing credit and, in automotive cases, customers do not want to risk production, so they demand a sale or resourcing.
Consequently, unless undertaken early, restructuring is usually not successful and, due to the losses incurred during the process, may be worse for the owners than a wind-down. As a result, management must strongly consider whether its best option is a sale or wind-down.
What are some key issues with distressed acquisitions?
The major benefit of distressed acquisitions is adding revenue and/or capacity at a good price. Typically, distressed sellers have lenders that are willing to accept a discount on debt and in chapter 11 ‘363 sales’ or UCC Article 9 sales, the business can be acquired free of its trade debt, as well. And this is one area where funding seems to be available because private equity firms are seeking opportunities to deploy capital.
There are risks. If the seller has a problem, and the problem is too much debt, the structure of the transaction may eliminate it. However, if the issues are more fundamental, the acquisition could jeopardize the buyer, so buyers need to make sure they understand the seller’s business and what is causing the losses. Additionally, the acquisition needs to be structured so that if losses continue, the risks to the buyer from the seller’s operations and losses are isolated from the buyer.
Finally, there are risks that are not present in other acquisitions, such as that the time involved in negotiating with lenders, trade creditors or customers will cause the seller to continue to consume cash, impacting the potential return and driving up the price.
What are ‘363 sales’ and Article 9 sales?
363 sales are sales in bankruptcy. Historically, buyers required distressed sellers to go into chapter 11 to take advantage of this code section, as it enables buyers to get a court order stating the purchase is free and clear from most claims against the seller. However, because the cost is high, and the bankruptcy code requires competitive bidding, the benefit of a 363 sale may be outweighed.
Recently, distressed transactions are being done under Article 9 of the UCC, allowing a secured lender to sell personal property free and clear of claims against the distressed borrower. Article 9 sales can be done quickly, with limited notice, and can be structured as a surrender of assets to the lender and a simultaneous sale to the buyer, or by having the buyer purchase the secured debt and then foreclose on the assets.
However, real estate cannot be sold under Article 9, so creative structuring is required to do a transaction in which the seller owns real estate that is needed in the business.
Stephen M. Gross is the Detroit managing member of McDonald Hopkins PLC. Reach him at firstname.lastname@example.org or (248) 646-5070.
It was early 2009 when Gregory Jackson realized he might have a ticking time bomb on his hands.
Jackson is the founder, president and CEO of Jackson Automotive Management. Two years ago, the company owned Ford, Toyota, Mercedes Benz, Scion and Saturn dealerships in Michigan and Florida. The dealerships generated $1 billion in sales in 2008 and employed about 550 people.
But over the span of about six months from late 2008 to early 2009, the dominoes started to fall. A series of violent shockwaves hit the American automotive industry as the economy sank into its worst recession since the 1930s. ? General Motors and Chrysler both filed for Chapter 11 bankruptcy protection and, subsequently, underwent reorganization and streamlining. GM committed to moving forward with the Cadillac, GMC, Buick and Chevrolet brands, leaving the corporation to either find new owners for the Saturn, Pontiac, Hummer and Saab brands or discontinue them.
Jackson owned five Saturn dealerships, comprising half of his work force, which spent half a year on edge waiting for a definite word on Saturn’s future. In the summer of 2009, after a deal between GM and Penske Automotive Group fell through, months of waiting and wondering culminated with the worst fears of Jackson and his staff realized: Saturn was done. All new production was halted in October 2009, and all retail franchises would be closed by the end of October 2010.
“I can’t sugarcoat it. It was stressful, and it was very disheartening,” Jackson says. “There is nothing worse than to know someone’s family, walk in and tell them that they don’t have a job anymore — particularly when these were successful, profitable businesses just yesterday. There was a lot of crying among people. It was very emotional, due to the loss of jobs and the financial hardship you knew people were going to be under, both employees and managers.”
The death of Saturn tested Jackson as a leader and a communicator. He had to pilot his business through a devastating blow to morale and five dealerships’ worth of lost revenue, which dropped his company’s 2009 sales to $600 million.
What the circumstances reinforced to him was the principles of good business leadership: Keep your employees informed and make wise financial decisions.
Keep information flowing
The hardest pill to swallow for the employees at Jackson’s Saturn dealer was the fact that Saturn was a moneymaker for Jackson’s company. The cars were selling and the brand was still popular. When viewed from the store level, there was no reason to believe the dealers should ever be in danger of closing.
But car dealers are caught in the middle, between the purchasing habits of consumers and the top-level decisions of the automakers that supply the product. If one or the other stops supporting the dealer, the business is in jeopardy.
In any business situation, you have to realize what you can and can’t control. You can’t control market fluctuations, but you can control how your business prepares for and reacts to the fluctuations.
At Jackson Automotive Management, Jackson and his leadership team couldn’t control what was happening at GM headquarters, but they could control the flow of information.
“When we were going through all of this with Saturn, what we did was share information on an almost daily basis,” Jackson says. “We were getting information almost daily, when Penske was going to buy Saturn and then all of that blew up after we thought it was a done deal. When GM first announced it was going to close Saturn, there was some question as to whether they were really going to do it.”
With many questions bouncing around the shop and showroom floor and with few answers evident, Jackson kept in contact with the general managers of his Saturn dealers, making sure they had the latest and most comprehensive information available to disseminate to employees.
“Almost daily, the general managers were walking around their stores, fielding questions from employees,” Jackson says. “It was not unusual for the general manager to walk through the service department and a couple of technicians would come up and ask about something they had heard floating around. Before you knew it, five or six technicians would be up there talking to the general manager.
“The general manager would say, ‘I have this e-mail. Here is the latest word I’ve heard; you know as much as I know.’ The employees were appreciative of that. They took all the information in, and then they’d go and tell the rest of the people in that department, so everyone was up to date. There was nothing for us to hide.”
It is difficult to be frank and deliver the unvarnished truth when the news could hurt your collective morale and possibly your bottom line. But if you don’t fill the need for information, your people will. The rumor mill will pick up steam as employees take bits and pieces of news and try to form conclusions. The end result is usually destructive.
“The reality is, we’re human beings, your workers are human beings and we’re emotional,” Jackson says. “They are affected by everything from talking to their neighbor over the back fence, to talking with the lady ahead of them in the grocery line, to talking with their buddy at the bar. All of these people are giving them different stories. So you want to stop the effects of that immediately.
“You might try to create a few distractions to keep people’s minds focused on something besides the bad news. We had an event where we took all employees to see a Red Wings hockey game. We had a big ‘Sex and the City’ movie premiere night. It was just trying to have a few fun things to reduce the outside distractions and keep people loyal to the business.”
An outing at a sporting event or a staff movie night can be beneficial for taking employees’ minds off of the problems that the business is facing. But if the time comes to deliver bad news, such as layoffs or cutbacks, Jackson says you should remember that all good communication is rooted in honesty. The bad news you deliver is still miles better than the bad news you don’t deliver or try to sugarcoat.
“I’d say you have to handle it delicately but directly,” he says. “Again, the worst thing you can do is to not be completely honest with people about what is going on. The news media, the rumor mill, it’s always going to be alive and active, and the worst thing you can do is to be less than honest and allow people to carry rumors with them. You lose a lot of faith and people are emotionally distraught. You don’t want them to do something unhealthy for them or for the business in a highly emotional time.”
Take a conservative approach
The loss of Saturn hurt Jackson Automotive Management with regard to morale, manpower and sales. But in spite of all the negative fallout, the business remained on solid financial footing. Jackson attributes the resilience to a conservative financial game plan in which he emphasized rainy-day planning.
To endure bad financial times, you need to lay the groundwork when times are more prosperous. Jackson lays the groundwork for future success by limiting the amount of debt his business shoulders.
“One of the good things about our business is that we’ve never had a lot of debt,” he says. “As a result, we did have some cash and were able to weather the storm. We didn’t come out unscathed, but we were still healthy. We’ve always run very tight with regard to our expense structure, so when a lot of people started dialing back their operations, we didn’t have to do a lot of dialing back. We were already efficient.”
With some cash available, Jackson was able to open a new Mitsubishi franchise in Florida, and transfer some of his Saturn employees there, helping to cushion the blow for at least some of his people.
To acquire financial flexibility when the economy goes sour, you need to refrain from overly aggressive spending when times are good and you have extra cash in the coffers. Just because you have the cash to spend on a new venture doesn’t mean you always have to do it. You have to know when to pounce on an opportunity that makes sense for your business and matches well with your business plan and when to hold back.
“My philosophy is that if you maintain a level of conservatism, then you never have to have a fire drill,” Jackson says. “A lot of businesses went into a fire-drill mentality, because they were overly aggressive and maybe even greedy. They may be full of what Warren Buffett calls irrational exuberance. But I think if you maintain a level of conservatism, while still being able to jump in and out of an aggressive mode when necessary, that’s a good balance. A certain level of conservatism breeds safety.”
If you are going to take a chance on a new business opportunity, make sure it makes sense for your situation and make sure you have performed detailed research on the market potential of the idea.
“Don’t leverage yourself too much from a debt standpoint,” Jackson says. “Be careful about building it and hoping they will come. Don’t go out and build without an absolute certainty that the market is there. That’s not what a lot of dealers did. A lot went in and overbuilt. They built buildings and leveraged themselves out with extreme debt. Then, as cash flow slowed down, they couldn’t make their payments. That happened to businesses as a whole, not just auto dealers. So you want to have more expense structure than you think you might need. I believe in running things more tightly as opposed to loose.”
The way you maintain that level of control is to measure your goals, your finances and your spending habits on an ongoing basis. At Jackson Automotive Management, each dealer communicates its projected needs for the coming year to Jackson and his corporate leadership team. Jackson wants his general managers to think along the lines of a CEO, taking a wide-angle view to the next year’s projected expenditures, so there are as few surprises as possible.
“If you’re anticipating needing extra personnel, giving them raises or bonuses, you plan that out, put it into your forecast and approval process,” Jackson says. “That’s as opposed to a random manager promising a raise to an employee and then you end up adding that overhead as you go. Or worse, promising a raise and then realizing you don’t have the financial ability to do it, and then you have a morale issue on your hands.
“You have to have good financial controls in place to pilot a business through a recession like this. You need to have those approval processes for capital expenditures and the adding of personnel. A lot of that involves good yearly planning, which ensures that you can maintain proper control over those types of things.”
How to reach: Jackson Automotive Management and Mercedes-Benz of St. Clair Shores, (586) 773-2369 or www.mercedesbenzofstclairshores.com
The Jackson file
founder, president and CEO
Jackson Automotive Management
Education: Bachelor of science degree, accounting, Morris Brown College; MBA, Clark Atlanta University Graduate School of Business
First job: When I was a kid, I used to work in the local stores in my neighborhood taking out garbage. I was the kid out there hauling two-by-fours when the men in the neighborhood were building something. Later on, I had a paper route.
What is the best business lesson you’ve learned?
Cash is king. Without it, you can’t run your business. A lot of businesses are around now because they had cash, and they’re now poised to be major players because the industry has shrunk.
What traits or skills are essential for a business leader?
You need to have a strong understanding of finance. You need to have good people skills and the ability to make hard decisions with the knowledge that people are going to get hurt. You have to understand how your decisions will impact people’s lives, and then work to minimize the hurt.
What is your definition of success?
Success for me is having good, strong children who have grown up to be productive citizens. It starts with family. On the professional side, it is to create jobs and opportunities for people, participate in the world economy and make a difference there.
The sales landscape is changing. To succeed, businesses need to focus on three key drivers of profitable growth — customers, pricing and innovation.
“If you think about those three things, sales is the critical nexus through which they all flow,” says Jim Lane, director of RedBank Advisors at GBQ Partners LLC. “You can’t get a decent price if your sales people cave when they’re pressured. You can’t hear about innovative demands and needs from your customers if your sales people are not listening carefully. You can’t establish customer satisfaction with a sales force that is setting expectations that you cannot meet. Sales is a critical enabler of all three drivers of profitable growth.”
Smart Business spoke with Lane about how to understand the changing sales atmosphere and make sure your sales force can accommodate the changes.
How has the sales environment changed?
If you rewind a little bit, a lot of businesses thought their sales guys were absolutely amazing in the 1990s, and many of those sales people are still in place. Early in this decade, business leaders looked at sales people a more little critically, but then the sales group seemed to recover and hit their feet again. That all changed with this last downturn, and now no one seems to know how to sell.
Have the sales people really been getting better and worse? No, but what’s been happening is that our feelings about sales people track with the economy. So in the mid to late 1990s, the economy was raging along, and all you had to do was show up with a sales book to get an order. In the early 2000s, there was a bit of a downturn, so we looked at sales people with a bit of a critical eye. But we recovered and started to make progress again, so business leaders thought that sales people knew what they were doing. But it wasn’t until this latest downturn when we figured out that they really don’t know it all, and in many cases, are not suited for sales or don’t have the knowledge or skills to be effective at sales. As a result, we’ve seen a bunch of sales managers and sales people who’ve been exposed as not good at what they’re doing.
What are some key things business leaders need to understand about the changing atmosphere of sales and growth?
The key difficulty that business owners have when looking at their sales force and growth curve is that, once they know what their own desires and goals are for growth, they don’t separate out what they’re accomplishing versus what’s being accomplished because of the business environment. In the 1990s, we all thought we were geniuses. But over the last 18 to 24 months, we all thought we were idiots. Have we really changed, or is it just the performance of the economy that’s driving the change in the business? You have to separate out what you can control versus what the economy controls. That will help you determine the difference between an opportunity to improve and factors beyond your control.
How do you work with your sales force to accommodate this change?
The first aspect is getting the right people in place with the right psychological makeup. The second part is making sure that they have the skills and training that they need.
That first part is really a price of entry, it’s really a go or no go. There are a couple of key characteristics of a good sales person’s psyche, which deal with a willingness and commitment to do whatever it takes to make oneself successful. The other one is fortitude and the ability to hear no, keep on going and keep your drive up. If someone is lacking in those two elements, it’s probably not a good idea for that person to remain in sales for a career. You have to evaluate each sales person with a rigorous assessment tool so you can determine his or her potential. Then you can track progress against their potential each year as you go along.
Then you can train your sales force on a whole series of different skills. You can definitely impact these and improve performance through some of these skills in a way that has a return associated with it. When you first look at your sales force, you need to determine if you receive a continued return on investment. You might as well just trade them out or eliminate those positions if you do not. If you have a group of sales people who have those core psyche elements, then you can determine what the return on investment will be for that group. That’s where you see an opportunity to continue to invest in and improve the performance of the existing sales group.
Once you’ve been through this analysis, and you know how to invest in your current talent pool, then you can look at the gaps. You look at what types of sales people that you do have, and what types of sales people that you need to drive growth.
What are the benefits and risks of focusing on the key drivers of profitable growth?
Business leadership is a balance of looking at drivers of growth and profitability and looking at efficiency, which is more cost focused. Drivers of growth tend to be revenue and top line oriented. Drivers of efficiency tend to be cost and bottom line oriented. As with anything, if you focus too much on the left hand, you forget what the right hand is doing. You need to keep a balanced outlook.
If you do focus on profitable growth, the key benefit is that you become a much stronger organization. Companies that did well over the last 18 to 24 months were ones that had already taken up the challenge of being profitable. They came into the downturn with the cash to take advantage of buying opportunities and were able to invest in new capabilities and talent at a time when they were relative bargains.
Being more profitable makes you a much stronger firm. When another company is trimming to survive, you can attack their customer base and introduce new products. That financial strength enables you to do a lot of things when there are competitive opportunities to move.
Jim Lane is the director of RedBank Advisors at GBQ Partners LLC. Reach him at (614) 947-5257 or email@example.com.
Just as people need annual check-ups to maintain their physical health, businesses also need check-ups to help maintain their financial health.
Businesses that are dedicated to creating solid business plans with both short- and long-term goals, and that habitually refer to those written documents and measure their success against those goals are better positioned than their competitors to access capital for growth and go after market opportunities, says Stewart Beach, executive vice president, Old Second National Bank, Aurora, Ill.
“With the economic climate in recent years, it’s critical for business owners to constantly evaluate their position in the market, to review goals and objectives, and to determine what action items are necessary to carry out their business plans,” says Beach. “A business’s bank wants to make sure that management is actively leading the business toward success and future growth, making performing regular financial checkups so vital.”
Smart Business spoke with Beach about how to perform a regular review of your business and its performance, and what to consider during these financial checkups.
What metrics should a business focus on when performing financial checkups?
A business plan is a roadmap for an organization’s goals, both short term and long term, and all businesses should have this document in place and on paper. But the plan doesn’t do any good if you simply create it and put it on a shelf; instead, the plan should evolve over time, be edited frequently and revisited regularly so a business can determine whether it is hitting key goals and objectives.
In particular, the budget is a primary checkpoint that should be carefully analyzed on a regular basis. Is the business meeting its projections? If not, why? What factors are causing the business to derail from the plan? While a business plan seems like an inevitable foundation for any business, the fact is that many organizations do not have a formal plan in place.
But every business needs to dedicate the time and resources necessary to assemble those goals, lofty ideas, strategic opportunities and, most important, those numbers into a sturdy, well-crafted business plan, creating a document that will serve as the basis for regular checkups.
What value do these regular checkups have for a business’s relationship with its bank?
While access to capital is better today than it was a couple of years ago, banks still approach business opportunities with cautious optimism, much like any business would consider a deal in these more fragile economic times. Banks want to know that their business clients have a solid plan in place and that they regularly review financials. This is evidence of a strong management team that is actively leading the business and meeting financial targets.
Management that is on top of the budget and on task with achieving business objectives is likely open to growth opportunities, and this is a win-win for banks and the businesses that partner with them.
How does the economy impact the way businesses should evaluate their organizations?
In the current economy, the markets change more rapidly and business cycles move faster than ever before. Businesses might need to go back to the drawing board and review their business plans to ensure that there is enough flexibility to meet changing demands, whether from the customer base, vendors or delivery sources.
The key word is flexibility. Flexibility should be a way of business life today. But an organization can only be flexible when it has a solid anchor, a business plan or similar document that serves as a benchmarking tool. From there, a company can measure and celebrate its successes.
By regularly taking the pulse of the business, management is in a better position to act on market opportunities. For instance, one of the fastest growing segments today is exports. Businesses that produce all products in the United States and have not considered international business might want to investigate how to gain a presence in the export market. Perhaps a company wants to develop an export business to grow its existing domestic revenue. Or a retail organization might begin to explore online sales opportunities to add muscle to its current in-store sales.
The key is to constantly be looking for what’s next, and the businesses that continue to check in with their plan and ensure that the budget is in line, that goals are being met and that key people are in place to help the business grow have a better chance of succeeding when they venture into some of these market opportunities.
A business that is not on top of the budget, receivables, personnel and sales will not be in a position to capture new market opportunities. The economy today demands that businesses run lean, and that means understanding where every dollar is spent. This is why regular financial checkups are crucial to the future of any business.
Stewart Beach is executive vice president of Old Second National Bank in Aurora, Ill. Reach him at firstname.lastname@example.org or (630) 906-5478.
Mit Shah was enjoying the fruits of his labor.
As Shah, founder, senior managing principal and CEO of Noble Investment Group, a company that invests in and manages hotels, he had successfully gotten the business past the struggles that followed the Sept. 11 attacks when travel and tourism dollars fell. Everything was back on track, and the company had been growing, earning spots on the Inc. 5,000 list through the years, and in 2008, it recorded $325 million in revenue.
But things have slowed from the pace Shah and his team are used to.
“We’ve built this model over 17 years — great people, great human characteristics — but clearly the last two and a half years have created a real pause of how we approach our business,” Shah says.
One of his challenges is having extremely talented people, which most wouldn’t think is a problem, but in tough times, it proves to be.
“How do you keep a group of highly successful, highly talented, highly motivated, passionate leaders engaged and focused on the ability to manage what we have when you’re an organization that’s truly built for continuous investment and continuous growth, and that’s how you’re structured?” Shah says.
He’s also been challenged by looking for opportunities to grow the business and figuring out how the market will shake out.
“That has been a big part of my responsibility to continue to surround myself with people who internally and externally will give me good insight as it relates to how do we see opportunities going forward,” he says.
And then it’s been just hunkering down on the business basics.
“Continue to do what the books say you’re supposed to do — stick to your core values during times of great opportunity and during times of crisis, take care of people, make sure that you continue to commit to things that are part of who you are and who you espouse to be,” Shah says.
Over the past three years, by building a solid group of peers to rely on, focusing on his people and looking for opportunities, Shah was able to successfully move Noble forward — earning $346 million in revenue in 2009 — and prepare it for future growth.
Build your peer group
One of the aspects of business that Shah says has been particularly critical the past few years has been forecasting out where the market would go and how things could change, but he can’t do this alone. He’s come to rely on a core group of people that he’s built over the years to help him better make decisions about his company.
For example, he may have dinner with the CEO of Hilton Hotels one day and the president of Wake Forest University on another, and they both play a critical role in his life.
“I always stayed very close to a group of people that I viewed could help me on a broader basis,” Shah says. “It goes back to this peer group — never being the smartest person in the room, always having the smartest room, and always finding people who I could befriend and I could build a relationship with and build a partnership with, who, in essence, I could learn from and build a base of knowledge that I wouldn’t get in just running my company.”
Having a group of people to get feedback and ideas from has also helped him bring in the best people when those openings arise. To build his group, he got out on the road and met with people continuously, and this went back as far as 18 years ago. Over the years, his group has also evolved and today includes top executives of the world’s major hotel chains, basketball coaches, people in service businesses and manufacturing as well as investment bankers.
“That’s really helped me think about things, both then and now, in a way that helps me lead more effectively,” he says. “I have the power of and the benefit of a broad range of thinking, and then I can take those thoughts, and I can incorporate them into my own and lead through that manner.”
To create a group for yourself, Shah suggests getting out more to build those relationships with people.
“Go to meetings, go to conferences, find out the best industry events,” he says. “Walk around, shake people’s hands, get to know people, and take every opportunity that you have to understand those in whatever business and industry are at the tip of being visionary, of being organizations that have had sustainable track records, that are respected among a group of people that you respect, and find opportunities to establish relationships.”
Sometimes that means you have to make the tougher decision in the here and now. You may want to go do something fun, but instead, you need to choose to do what will be most beneficial in the long term.
“There’s been times all across my entire career where it’s an opportunity to either go have a dinner or to be in the same room or to go to a meeting or a conference, and you have no idea what you’re going to get out of it,” Shah says. “But spend those times as opposed to saying, ‘Let’s go find the best place to watch the game tonight,’ and really go and find an opportunity to establish a friendship.”
When you meet people and get to know them, it’s important to remember that they’re people just like you, so use that as a base to build that friendship.
“It doesn’t matter if someone is the CEO of a big Fortune 100 company or if they’re just your golfing buddy,” he says. “At the end of the day, when you peel back everything, people are just, if you find good human beings, decent people. They’d much rather go have a barbecue sandwich than have something fancy. They’d much rather have a beer together and talk about your families than always be talking about how you’re going to win market share here and how you’re going to do that. That all comes, but break it down to just finding quality human beings and building friendships with them.”
Focus on your people
During the downturn, Shah didn’t cut his 401(k) match, community service programs or the company Christmas party. Instead, he doubled the budget for his employee engagement committee so it could plan things like bowling outings and have a really nice holiday party.
“Let’s be honest, this is a tough labor market,” he says. “People aren’t jumping jobs right now, so we get that. You can’t use that as a crutch, because as soon as the market comes back, they’ll leave for a better opportunity once available.”
Despite the challenging times, it’s crucial to make sure you continue to focus on your people and how you can support them. Look at the people that aren’t your senior managers — just your everyday, salaried employees — and reflect on what their intentions are.
“Do they have the character and confidence, and then do they care about the company’s best interest?” Shah asks. “If they do, then making that decision is very easy.”
If you have employees that would leave to go across the street for 5 percent more, then Shah understands not wanting to put the resources out to support them, but at the same time, he also questions why that is.
“What does that mean?” he says. “That means that if you haven’t brought in that person who has that character and if you haven’t done the things to promote that loyalty, whose fault is it? Is it the team member’s fault or the employer’s fault that they’re not loyal?”
When you face yourself with this kind of a situation, that’s when it becomes difficult to decide whether to put money toward your people or to keep it for the company.
“If employers are in that situation, then it’s hard for them to part with their dollars because — they’ll never admit it and they’ll never sit in front of a town hall and say, ‘All of you employees are commodities,’ — they would never say that, and if they feel that, they’ll make a decision and say, ‘We’ll just hoard the cash,’” Shah says. “But if you really believe in your team members, and if you really believe they have the organization’s best interest and they’re going to be there for the long haul, then you take care of them. You always take care of them.”
In fact, as 2009 came to an end, Shah was anticipating a surplus in the budget and predicted that they would be creating a supplementary bonus program with it in addition to putting some of that back into the company as a buffer for this year.
“You always go to the denominator of what’s the right thing to do,” he says.
The economy has changed business the past few years, so you can’t just rest on your laurels and expect clients to come your way.
“You’ve got to look through a number of different avenues,” Shah says. “It’s far different than it ever was. Generating business in general is different than what it was before — in any industry.”
Over the past couple of years, Shah has been diligent about looking for new opportunities, and that starts with knowing your market.
“It’s really about having a very good understanding of your marketplace so you don’t have to be a big national organization or global organization,” he says. “We could be just the best hotel group in Atlanta, but we need to know Atlanta like the back of our hand.”
Knowing your market also goes back to your peer group and having people you can talk to about how the market is going so you can better predict how things may shift. On top of that, it’s important to have a niche.
“You have to find a niche in the business,” Shah says. “I think that companies of the future that are going to be very successful will have a niche. They aren’t broad-based companies that do a lot of things. They’ll find a couple things they do really well, and they focus on those things, and they outperform the competition there. It’s way too difficult to be good at many different things.”
For example, Shah knows that his company is good at hotels, but he also recognizes that it isn’t cut out to go into, say, grocery stores or office buildings.
“You can’t just, all of a sudden, wake up one day and say, ‘I think we’re going to be grocery-anchored retail,’” he says. “There’s some smart leaders in our organization, but we don’t know anything about grocery-anchored retail, and I can’t just go hire someone who knows about grocery-anchored retail and pretend we can be a great company overnight.”
Instead, you have to look at what your company already does and what expertise you already have within the organization.
“You have to say, ‘What are you built to go do that’s as good as or better than the best people that do it in your business?’” Shah says. “Based on that, how do you build that if you have not already? If you think you have it already, how do you go and execute around that area?”
If you see that the opportunities aren’t in that area and you do think you have to explore a different area, you need to do it in a smart way.
“If we don’t know how to do something, we always go get the talent first and go and build a model around it, and then start with one and continue to grow,” he says. “That’s what we’ve historically always done.”
The key is you have to be able to live with whatever consequences come as a result of the direction you head.
“Understand what your downside is,” Shah says. “Know what you can live with. It’s hard. How do you be visionary, be aggressive, be strategic and also manage risks without just being completely paralyzed by it?”
How to reach: Noble Investment Group, (404) 262-9660 or www.nobleinvestment.com
The Shah file
Founder, Senior Managing Principal and CEO
Noble Investment Group
Born: Morristown, N.J.
Education: Bachelor’s degree, economics, Wake Forest University
As a kid, what did you want to be when you grew up?
I wanted to be a basketball coach. If I can’t be a coach, I want to be an announcer.
I’m first generation American. My parents are both immigrants. I’m the eldest child of immigrants. They think about education and stability, and you’re like, ‘Hey! I’m going to be a basketball coach or announcer.’ They’re like, ‘What are you talking about? You’re going to be a doctor.’ I was like, ‘All right, I guess I’m going to be a doctor,’ — until I got to college and took bio and chem and physics and hated all three with a passion.
Did you get the chance to coach at all?
I used to coach kids basketball when I was in college. One of the first things that really helped me think about what I wanted to do with my life was when a friend of mine was going to be the head coach, and he asked me to be the assistant, and he transferred schools, so I ended up becoming the head coach before the first game, and it was the most thrilling thing to me.
I was coaching these 11- and 12-year-old kids, but these kids were just wide open. They listened, they cared, they were good enough where you could teach them things. I was like, ‘This is really great.’ They’re 12, so they’re going to listen to you, and they don’t care that you’re 18 — they’re 11, so they look at you as a leader. I was like, ‘Wow. This is the first time anyone’s listened to me.’ It got me really excited about the opportunity to lead and the opportunity to be somewhere where I could teach and help people maximize their potential.
What’s the best book you’ve read?
I’ve got a number — Jim Collins’ ‘Good to Great.’ It’s kind of a pat answer. It was the first book I ever read that gave real tangible evidence of what companies did over time to help them not only survive but thrive through multiple periods of economic volatility. It helped me think about my business in ways I never had thought about it before.
If you’re looking for something less business-oriented, ‘The Last Lecture’ by Randy Pausch was a great book because it really touched on things that, to me as a human being, we should always think about.
“That which does not kill us makes us stronger” opined the 19th century German philosopher Friedrich Nietzsche. The recent recession killed off many companies, and inevitably, the next one will kill more, an economic cycle as harsh and as inescapable as droughts on the Serengeti plains.
So, for both survivors and casualties, what did we learn that will make us stronger and more conditioned to survive the next one? We learned (if we needed to) that spending $1.22 million to redecorate your personal office doesn’t actually improve your company’s performance.
We discovered that however expensive your public relations firm, billing your company’s shareholders for your private jet in order to go panhandling to the taxpayer is never going to get you good press. We found out that many of our formerly friendly bankers, who we trusted to help our businesses, turned out to have been incapable of helping their own.
We learned who our friends were. Not just our suppliers and customers but, most importantly, those within the businesses we manage. We discovered who were the strong and who were the weak; we leaned on the rocks and flushed out the whiners, heard those who complained that they hadn’t had a pay raise or a bonus and listened to those who knuckled down and realized the only way to be paid more was to help the company generate more business.
But the most important lesson I learned was that however important a culture of good leadership at all levels is in the good times, it is absolutely critical in the bad.
Leadership is the single most important factor in any organization. It is the deciding factor between mediocrity and excellence, between success or failure. Those managers who had led their departments well before the recession, who had built strong teams, whose people exuded strong morale, whose staff were loyal to them and the company, who understood the aim and what was necessary to achieve it, who were prepared to make the tough decisions, were the ones that fared best when times got rough.
Those who had just gotten by in the happy years, their performance unnoticed or their attitude not addressed, were the ones overwhelmed by the difficult decisions and the changed circumstances.
Creating such a climate requires an ongoing commitment from the very top. The right people need to be hired, they need to be trained and they need to be allowed to flourish. They need to be mentored and their innate abilities developed. Being ultimately responsible for the company’s performance, it is my job to ensure that this happens. When things are going well, when it seems as if we can do nothing wrong, it is easy to compromise in the interest of priorities — “Let’s not worry about training; people can learn on the job.” Bringing in a weak manager whom you have doubts about simply to fill a role or failing to ensure that a manager has all of the tools he or she needs to do the job backfires when in a recession because that manager is incapable of inspiring his or her team to excel.
All of this needs to be put in place now, both to take advantage of the better times and in preparation for the next recession. The grass on the plains may be getting greener, the water holes filling up and the rivers flowing again, but the hyenas are still out there. Only by preparing can one stand the best chance of being strong and fit enough to survive when the drought returns, as it inevitably will.
Julian K. Hutton is president of Merlin Hospitality Management, where he oversees the company’s Hotel Management and Distressed Asset Management operations, drawing on 20 years experience in the worldwide travel and hospitality industry.