I am bullish on Houston and proud to be part of a "can do" attitude in Texas. The bottom line is that our Houston economy continues to remain healthy, with overall leasing activity strong in the second quarter of 2012. The main driver in the Houston market is simple — strong job growth.
Our city added almost 90,000 jobs between May 2011 and May 2012 and our unemployment decreased to 6.9 percent, from 8.1 percent one year ago. Landlords continue to report strong velocity in leasing activity, resulting in over 1.4 million square feet of positive absorption in the second quarter, pushing the year to date total to 2.4 million square feet.
With all the positive news, the key is the energy sector. Some of the recent growth includes the expansion in North Houston and Woodlands, including Exxon Mobile's North Houston Campus, which is under construction, and Anadarko's second corporate tower in the Woodlands. Other submarkets are growing, including Phillips 66's recent announcement regarding plans to build a headquarters in West Houston, along with Apache's acquisition of the Galleria area land for a new headquarters building.
Although obviously one of the strongest office markets in the country, I believe the Houston market still will face some challenges due to mergers and company consolidations that will result in new sublease space hitting the market. At the end of the second quarter overall, we had almost 1.1 million square feet of sublease space available citywide, and in the CBD there is 360,500 square feet available, primarily in the Class A properties.
With the strength in our economy, our clients are now making longer term lease commitments (5-10 years) compared to a year ago. Landlords are now evaluating their tenant mix in their buildings, and if the tenant prospect has solid credit, they are offering aggressive tenant allowance packages to entice them to commit long term.
John S. Parsley, SIOR, is the principal and director of the Houston office of Colliers International. Reach him at (713) 830-2140 or email@example.com.
Recovery continues to be slower than most businesses would prefer. Part of the slow growth is due to concern from many business owners regarding whether they can trust some of the leading economic indicators released in the past few months.
On a positive note, recent trends have shown that unemployment is being reduced overall. The National Association of Manufacturers also reported that more than 31,000 new U.S. manufacturing jobs were created in February. This increase, however, is tempered with the belief that many unemployed individuals have simply given up on job searches, as they have now been out of work for an extended period. The end of their search effort causes many to fall off of the tracked statistics. This may be causing some lower-than-actual unemployment numbers to be reported. In addition, a recent University of Michigan study showed consumer confidence figures have fallen slightly due to weakening perceptions about the economic environment.
Two other areas facing business owners have caused them to move at a slower pace when considering expansion, acquisitions and hiring of additional employees. These two areas are taxes and the looming health care changes. With the potential for higher taxes and higher health care costs on the horizon, many entrepreneurs are taking a wait-and-see approach. Thus, the reports of companies continuing to pay down third-party debt and stockpile cash still exist.
It seems businesses have returned to profitability as a result of their concentrated efforts implemented to endure the economic downturn. The threat of losses, liquidity issues and, in some cases, covenant violations forced many businesses to lean up operations, challenge spending and do more with less. As a result, many are producing more with fewer resources and have improved their processes. Earnings levels have improved, but most results are still below the levels experienced in the mid-2000s.
Also of concern is uncertainty in foreign markets. While we have had a credit and debt crisis here, overseas trouble has many business owners contemplating international business relationships and opportunities. In the mid-2000s, many production jobs were moved overseas to benefit from inexpensive labor. With the current domestic economic conditions and the lack of stability driven by the uncertainties in the Eurozone, there are rumblings that U.S. companies may work to grow domestic manufacturing and pull jobs back to the U.S. Innovations also are occurring in certain niche areas, and the shrinking cost advantage of outsourcing production is becoming more evident. Job growth continues to be a major focus domestically, and labor negotiations of major industries, such as auto makers, have demonstrated the desire for large companies to guarantee sustainability and promise to keep jobs in the U.S.
There is also concern regarding the stability of the buying power of foreign markets. U.S. companies have continued to expand their penetration into foreign developing markets. The ultimate results of the various national debt issues in the Eurozone could create an economic ripple effect that could affect demand for U.S. products in many foreign markets. Also, the continued political changes and instability in eastern countries can create swings in energy prices and product demand in those markets. This creates difficulty in planning for growth and expansion — and correspondingly a fair amount of caution when it comes to the timing of capital investment and business expansion.
Merger & Acquisition Activity
While the aforementioned factors have slowed down private business owner activity related to expansion and acquisitions, another business segment seems to have picked up. Private equity groups and private investors have been much more active in recent months. There has been significant public discussion in the past 18 months regarding cash that is on the “sidelines” waiting to be invested. We have seen that as the economy begins to expand and smooth out, more M&A deals are being contemplated. Also, business valuations are returning to more normal and expected levels driven by those wishing to market their businesses, and banks are becoming more willing and involved in financing such deals. We view this as an encouraging sign and an indication of continued movement in the right direction.
Each business faces unique challenges, but all ultimately need to consider, plan for and execute a succession plan. Whether the plan involves selling the company to an unrelated third party, transitioning or selling the company to the next generation, an ESOP or some combination of these, this issue has to be addressed. The recent increase in merger and acquisition activity has been driven in a number of cases by exit strategies employed by many business owners. As the baby boomers continue to exit the workforce and leave their businesses, we will see more and more movement and opportunity in this M&A wave. When these decisions are made and the process starts, planning can have a significant effect on the company’s valuation and the ultimate profit realized by the owner. This truly is one of those areas where “an ounce of prevention (of negative results) is worth a pound of cure.”
Here are a few planning ideas that can be game changers when an owner is looking to improve value:
- Perform due diligence on your business and your business processes and activities. Many sellers believe the diligence process is the buyer’s responsibility. While buyers will spend a great deal of time and effort on due diligence, performing self due diligence can overcome a number of surprises, allow the seller time to position its operations and activities to provide the greatest advantage and better prepare the seller for questions asked during the process. Being prepared when soliciting bidders also will likely increase the number of bidders you may be able to attract.During this process, you should consider reverse due diligence, or preparing the data that will likely be requested during the due diligence process. These are standard documents requested in most diligence engagements. Having this information ready on the front end adds value and helps move the process along. Delays in outside or third-party diligence have been proven to affect deal values.Also, have your company’s financial statements audited by a firm that potential buyers consider reputable. Audited financial statements provide immediate credibility.
- Make sure you impress upon buyers the value of the company you are offering to them. Build a business case for why the company will continue to prosper and grow and what positive effects the existing infrastructure will have on such growth.
- Document agreements with employees and third parties. It is important for buyers to mitigate the unknowns when buying a business, so the more documentation for contractual arrangements, the better.
- Be proactive relative to unresolved or potential litigation. Review pending or threatened claims with your attorneys and be honest about what situations exist. Resolve issues as diligently as possible. Make sure to include all potential human resources issues that may exist.
- Avoid accounting discrepancies, unusual transactions and changes in reporting methods. An audit, as discussed above, can assist with this. However, remember that any such instances will need to be explained and will be challenged by a buyer. Clouding facts will lead to more questions and may ultimately impact the value of your deal.
When it comes to the value of your company, you can never be too diligent. For more ideas on how to enhance value, contact a BKD advisor.
Scott L. Fields is a partner at the Houston office of BKD, LLP. Reach him at firstname.lastname@example.org.
Article reprinted with permission from BKD, LLP, www.bkd.com. All rights reserved.
For over 50 years Colliers International has provided real estate solutions to many of Houston’s leading corporations, institutions, and small businesses.
Leading companies such as 3M, Crown Castle, Talisman, Christus Health, Fidelity and The Coca-Cola Company rely on them for strategic guidance and creative solutions. That’s why Colliers International is ranked the second most-recognized commercial real estate brand in the world by the Lipsey Company.
Smart Business spoke with J. Patrick Duffy, ICSC, MCR, the president of the Houston office of Colliers International and chairman of the Colliers retail services group, about how the company overcomes obstacles and employs innovation to be on the leading edge.
Give us an example of a business challenge your organization faced, as well as how you overcame it.
The commercial real estate market saw a significant drop in business after the capital market meltdown in 08. While A drop in volume was predictable, the length (time before recovery) and depth of the decline were very difficult to predict. We knew that we needed to tighten our belts and get ready for a few years of substantially decreased revenue. At the same time we saw the downturn as an opportunity to improve our efficiency and potentially grow our market share while our publicly traded competitors, who had more short term earnings pressure, were forced to make more drastic cuts. We made the decision to cut any luxuries from our operations but maintain the core support services that our clients and brokers required to achieve the best results possible despite the current market conditions. Our partners agreed that short term losses, while not preferred, were acceptable if required to maintain our services at a high level and to keep the skilled people with the organization.
We had cash reserves and no debt going into the downturn which made this decision possible and when we made the decision to acquire a friendly competitor and obtain a new office location in Sugar Land, our partners opted to add additional capital rather than use capital reserves for the expansion.
The result of this action was that we kept our brokers and clients happy, managed to break even while we grew the firm in a depressed market environment and grow our market share. We implemented weekly training and streamlined many of our processes during the downturn and are enjoying the fruits of those efforts now that the market has recovered.
In what ways are you an innovative leader, and how does your organization employ innovation to be on the leading edge?
Colliers has a robust international platform and is investing globally in training and information technology which gives us a real edge over most of our competitors. I was given the opportunity to be a trainer for Colliers University classes and have leveraged that additional training to bring the best practices of our global platform to Houston in weekly one hour training sessions. We are taking the best ideas from around the world and where appropriate, applying them here at home in Houston.
We have embraced social media and technology but a great deal of our “innovation” is just acknowledging that there is always a better way to do everything, looking for examples and embracing positive change.
What is the greatest lesson you’ve learned and how have you applied it?
Making sure that there is alignment within the organization as to who we are, where we are going and why is critical. We have a running two year plan that every person has a copy of and has had the opportunity to comment on. Having clear vision and a plan to make it happen energizes most people and makes work more fun. We try to keep it light but focused.
How does your organization make a significant impact on the community and regional economy?
We help companies acquire and dispose of the real estate that supports their business. That may be a single asset or a portfolio of properties. We assist existing companies expand or relocate to improve their profitability and prosper. We guide companies that are considering the Houston market understand the dynamics of this area and make good decisions about where to locate and how to control their occupancy costs for long term success.
We also take an active role in the community through work with charitable and community organizations. As an example, we hold a golf tournament every year to raise funds for a selected charity (new one each year). This year we are helping “Kids’ Meals” purchase and distribute over 20,000 meals to Houston pre-school aged children, living in poverty who are in need of food.
How have you added “value” to the products and services you provide to customers and clients?
Real estate is one of the largest expense (and asset) line items for any company after their payroll costs. By bringing our experience in locating the right real estate for their particular business and negotiating the best terms for the control of that real estate, lease or purchase, we can have a significant impact on the profitability and growth of a company.
In many cases we help our clients with creative solutions for disposing of assets that they no longer need or in the case of investment properties are ready for conversion to the next asset or cash. Our professionals average over 18 years of experience and work collaboratively to make sure that we bring the best ideas and implementation to whatever commercial real estate problem our clients may have.
What is your philosophy on going “above and beyond” for customer service?
There is nothing better than getting a “wow” out of a client. Put simply, that is our goal. Our mission statement is that we will “deliver a superior commercial real estate experience with an absolute dedication to exceeding our clients’ expectations.” That mission statement is framed and on everyone’s desk. We try to live it.
J. Patrick Duffy, ICSC, MCR, is the president of the Houston office of Colliers International and chairman of the Colliers retail services group. Reach him at (713) 830-2112 or Patrick.Duffy@colliers.com.
As I was formulating some thoughts around this topic, this tweet appeared from @DrWayneWDyer: “Your reputation is in the hands of others,” reads the tweet. “The only thing you can control is your character.” It succinctly summarizes the message I want to share with you with regard to managing company reputation.
Managing reputation begins with top leadership and is rooted in your organization’s core values and corporate governance. It is reinforced in your financial performance, corporate offices, employee relations, and customer service guidelines and policies. It is reflected in the quality of your products and services. It is expressed through your company’s social responsibility, vendor and distributor relations, and media relations.
While a corporate image can be created, a corporate reputation is earned. As CEOs, we need to treat our corporate reputation as one of our most valuable assets and protect it at all costs. Protecting corporate reputation is a proactive position rather than a reactive one. It is in reacting to a situation that we can inadvertently cover up truths, make statements we’d love to take back and make poor decisions.
Proactively managing reputation pays off
At Greencrest, we established our core values more than a decade ago as a group exercise — getting input and consensus from all employees. In the end, the core values mirrored my own personal beliefs and defined the performance and operational tenets of our company. Because they were a part of our roots, they are relevant today and continue to be our guiding principles. They are painted on our wall and greet employees every day.
By identifying company core values, as leaders we can begin to put structure around all other policies. How are your core values reflected in your corporate governance? What about your employment and customer service policies? Corporate image is formed from internal and external communications. It is formed through the quality of products and services, our own behavior and attitudes. It is also influenced by our employees and the experience others have when interacting with us and our company and our physical offices. It can also be shaped by the company’s financial practices and our community and social responsibility.
As leaders, we must continually reinforce the company’s core values and policies and make sure our key staff represent and reinforce them, too. I have found that it is easy to become soft, too forgiving and accepting of the status quo. We become too busy to deal with important disciplinary matters or absent from managing direct reports for whatever reason. But as a company, we are at our best when we enforce our core values.
Don’t forget to plan for the unexpected
As CEOs, it is also our responsibility to manage the unexpected. My industry labels this as “crisis communications.” Organizations can successfully plan how to respond to worst-case scenarios, and in doing so, make us CEOs less “reactive” to situations where personal emotions and immediate response don’t allow us to think as clearly and rationally as we normally do.
I have successfully counseled numerous companies through crisis situations — everything from hiring illegal immigrants to negativity around organized labor contract negotiations to unfavorable actions of key executives to job-related deaths and injuries. But when the emotional impact of false statements made about my own company took me by surprise, I hired an outside public relations consultant to coach me and to manage our internal and external communications. It was well worth the expense.
Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you will do things differently.” This couldn’t be more relevant today, especially in the wake of the social media revolution. Those five minutes are more like seconds. So, if you’re not managing your company’s online reputation, you need to be doing that, too.
Kelly Borth is CEO and chief strategy officer for Greencrest, a 20-year-old brand development and strategic marketing firm that turns market players into market leaders. Kelly has received numerous honors for her business and community leadership. She serves on several local advisory boards and is one of 30 certified brand strategists in the U.S. Reach her at (614) 885-7921 or email@example.com, or for more information, visit www.greencrest.com.
In the book, “Judgment: How Winning Leaders Make Great Calls,” Noel Tichy and Warren Bennis state that “Judgment is the essential genome of leadership.” They add that “While misjudgments in any domain can be fatal, the one where a misstep is most damaging is poor judgment about the people on your team.”
Tichy and Bennis have articulated what many of us know from experience. We’ve demonstrated poor judgment or seen poor judgment in action when it comes to building an effective team. So how do we maximize the opportunities we have to build effective teams? Here are a few suggestions that provide a foundation for building a leadership team before you even address whom to put on your team.
Clearly define your value
One of the first considerations in building a leadership team is being clear about the value you’re trying to create. In last month’s column, we discussed the importance of knowing your primary organizational strength. The roles that need to be represented on your team need to support the value you’re creating.
Let’s use UPS as an example. Its primary organizational strength is operational efficiency. The value to the customer is dependable, cost-effective delivery. When thinking about building a leadership team for an organization like UPS, it seems logical that one team member needs to have operations as his or her sole focus.
If, however, you are leading a social service organization, while your processes need to be efficient, it probably won’t be your primary organizational strength. Your operations may fall under another function such as finance. However, talent management is critical. You may want to consider having someone outside of your transactional HR function serving on your senior team since your value is so critically linked to the attraction, retention and development of your people.
Of course, everyone on your leadership team is critical to your success. Each team member has different roles that will depend on your organizational strength. The key question is, “What functional leadership do you need to ensure that you’re building the value you’ve agreed on?”
Clearly define your role as CEO
As leader of your team, you serve two broad functions: One is to ensure the organization’s goals are met. The other is to ensure that your team has the resources it needs to meet those goals.
In order to do the first, you need to lead the team in defining who you are as organization. This includes, but isn’t limited to, your organizational purpose, direction, how you’re different or better than your competition and the behaviors that are key to your success.
You also need to lead the team in creating shared goals that support your identity. What will you do to make the identity come alive and how will you measure your progress over time? You need to ensure that the team has resources to meet your goals. This includes having the necessary talent, setting the right measures and ensuring the commitment to measurement and adaptation when you’re not meeting your goals.
Clearly define the purpose of your team
Other than being your direct reports, why does your team exist? What purpose does it serve? Here are a few suggestions:
- Your team exists to be stewards of your identity and shared goals.
- Individual leadership team members lead and serve their teams by ensuring they have set goals that support the entire organization and that resources are available to meet those goals.
- Leaders need to model the behavior outlined in your organizational identity. You need to live and demonstrate what you expect from others.
- Leadership team members hold each other accountable for the goals you co-create.
Unless you address these three steps first, even the best leaders can flounder in helping your organization create the future you long for.
Andy Kanefield is the founder of Dialect Inc. and co-author of “Uncommon Sense: One CEO's Tale of Getting in Sync.” Dialect helps organizations improve alignment and translation of organizational identity by discovering and using the unique strengths of the organization and its people. Andy can be reached at (314) 863-4400 and firstname.lastname@example.org.
The past few years have brought about the worst economic climate we have seen since the 1930s, and for Steve Cuntz, president and CEO of BlueStar Inc., the situation was no different.
However, Cuntz saw the economic downfall coming and prepared his company for the worst. His actions have helped BlueStar not only get through the downturn relatively unscathed but put it in a growing position and expanding globally.
“We have been successful beyond my wildest dreams,” Cuntz says. “I really anticipated more problems than we have experienced. Having been in the electronics industry long enough, the one thing you can guarantee is change.”
BlueStar is a national business-to-business distributor of point-of-sale and auto-ID products. Its ability to adapt to ever-changing conditions played a big part in its success through tough times and in its growth.
“Any time you’re growing, it’s anticipating the strain that scaling causes on an enterprise,” he says. “In any organization, your growth can put you in a position where the things you never would have dreamed of doing, now you’re going to have to do.”
BlueStar’s ability to adapt and keep its 370 employees hard at work through the downturn resulted in 2009 revenue of $365 million.
Here’s how Cuntz created a company that can weather tough economic times.
As a private company, BlueStar has sometimes had trouble getting suppliers to pay attention to it as a viable distributor.
“Since we are a privately held business, [suppliers] have a tendency to sometimes question your capability,” Cuntz says. “We manage to overcome it one supplier at a time. There’s nothing like performance that wins somebody over. It takes awhile for people to drink the tea, but once they get a taste of it, they understand what we are about. Usually in business, especially in distribution when you are doing order fulfillment and things like that, it’s just take the order and fill it. We go out and try to find new orders and try to develop new customers for our manufacturing partners, and over time, that has helped us create a major difference.”
During a time when a lot of companies were losing money and struggling to keep business, BlueStar was growing. The company used its position to help its customers, and in return, BlueStar gained valuable relationships.
“During the last recession, we bent over backward to extend credit terms and find ways of creating a business flow of capital that allowed our customers to live and keep their credit ratings while we continued to try and expand the marketplace,” Cuntz says. “That was a bit unusual, which may have had an impact to our suppliers, because during the recession, our sales actually went up. It’s ironic because a lot of what we sell is exactly what an enterprise needs to do to cut expense overhead.”
Cuntz didn’t think twice about stepping in and helping customers through their tough times. In fact, that kind of effort is a company philosophy.
“Going above and beyond is just part of our organization’s philosophy, which is ‘Give more than you receive,’” he says. “It provides a differentiator in so many ways. In the long term, it provides an advantage. Providing that extra value also provides you extra recognition, notoriety and opportunities that might not exist otherwise. You have to create a unique difference for yourself. Fill a need or a void that currently isn’t being filled. It depends on the business you’re in, but always be good for the money and always create a value-add difference for your business, and it will work.”
Hire strong employees
During the recession, companies like BlueStar had to keep people motivated by keeping them busy at work.
“It became very activity-based,” Cuntz says. “Call the customers up and let them know that if they have a deal, we want to help them close it. Call them up and tell them the good news that we’ve got extended credit. Call them up and tell them that we’ve got inventory. We didn’t cut our purchase orders, we stayed the course. We became one of the few distributors that actually had product available. They saw an immediate return on their investment because of increased activity. So it wasn’t hard to keep people motivated because they were writing orders as fast as they could.”
That motivation was also fueled by strong leadership and employees who were hired because they would grow within BlueStar and help the company succeed.
“We’ve got substantial managers in our organization,” Cuntz says. “Our philosophy is you can’t move up until you replace yourself with someone better. Our management team has continued to get better because we keep hiring better people than we are ourselves and after awhile that becomes attractive to talented people who look for a career path.
“You have to create an environment where you lead by example. Every day, people are watching you, and unless you have somebody better than you sitting behind you pushing, it’s easy to fall into that yes-man trap, and we haven’t had that. It’s very important in a growing company that you have people that want to grow.”
BlueStar’s challenge quickly changed from “How do we stay motivated?” to “How do we meet goals in this down economy?”
“You have to be honest and communicate with your employees,” Cuntz says. “You should tell them what you expect them to be doing. We use budgetary goal setting to discuss our future plans and growth. Sometimes we will use weekly meetings depending on what things are happening within the company. We have weekly meetings with our sales and marketing teams, and we communicate through terms of budgetary accomplishment and feedback loops and what we expect. Are we hitting our goals? Are we not hitting them? Why do you think that is? You have to ensure that employees are doing the things necessary to succeed. If you’re not meeting goals, then you need to communicate with staff and see what things need to be changed.”
Cuntz and BlueStar are also constantly combing for people who will bring drive and the desire to grow to the company.
“Hiring people is kind of like Glengarry Glen Ross with the ABCs of selling, ‘Always be closing,’” Cuntz says. “We use the term ‘Always be recruiting.’ I think you have to always be in the frame of mind when you see a talented person who expresses a desire to be a little bit more in life or has some desire to make a change; we just try to be sensitive to that and keep our ears open. Networking is critical. With the nature of our business, we are constantly at trade shows, and we work with hundreds of suppliers, so we are constantly networking with folks. We try to carefully define what we are looking to accomplish and what kind of skill sets and characteristics it’s going to take to fill that position. It’s not just a saying, ‘Always be recruiting.’ We are always thinking of that.”
Grow and invest
In the world of technology, the industry is never quiet. It is constantly changing and progressing forward, and it is crucial for companies like BlueStar to be able to grow, adapt and invest within those changes.
“The things that seem intuitively obvious with an enterprise package are not,” Cuntz says. “That was a real challenge for us, and it continues to be. We knew coming in that we will face change. How you change and how you succeed with that change is the real key. With a flexible mindset and a flexible business plan, you have to expect that it’s going to happen and you have to be willing to make the investments. You have to invest in change. I’m always thinking about what’s our next investment.
“You have to have some expectations of three things when you think about investing. First of all, you have to understand what the investment is thoroughly. I don’t care whether that’s stock of a Fortune 5 company or a small business. You need a real thorough understanding of who that company is and who the people that are managing the company are. The second thing is does the company have the capacity to do better than it’s currently doing? Look for the missing links. What could you do to bring about change that would help make this company or this investment more than it is? The third thing you should look at is does it fit with your culture? Also, is it attractively priced? If all those elements are in place, then you could probably move forward with that investment.”
In recent years, BlueStar has grown to a level where it has been looking to expand globally and make acquisitions that will augment and enhance its business. However, with global growth comes more changes and challenges.
“The one thing I didn’t plan on was the organizations’ cultures,” Cuntz says. “Different parts of the world have different customs, labor laws and things like that. The biggest challenge to us has been to understand not so much that the business appears to do the same kind of work that we do but to understand the underlying business development of that organization and what the thought process of those employees are. Those are the challenges of understanding if you bought a company that doesn’t match up philosophically with yours.
“You have to focus on companies that are in the core market of the kinds of products you sell. If you’re going to look for a merger or key acquisition, you have to look for key managers that are going to stay on that share your corporate philosophy. And you really have to know what it is you want to accomplish. You have to look for similarities where you don’t necessarily have to reinvent the wheel but where you can offer them something that they need that will help both of you grow.
“You have to understand the market you’re getting into and the culture of that market. Does the market have the potential to grow? What’s the economic climate? The U.S. is not the best benchmark for how most of the other parts of the world operate. You have to understand that there are other costs involved of managing foreign entities that we are not aware of. You have to have a team in those regions that can clearly explain to you what those costs are and what those opportunities are so you can make a valid decision whether that’s going to fit your business model.
“We can determine pretty quickly whether they’re of a like mindset or not. You have to sit down and say, ‘Here’s where we want to go, and here’s how far we have reached.’ And if they’re not in agreement with that, then sometimes you have to make a change. It’s going to come down to communication. Communication is not a quantifiable formula. It’s a skill set on both ends of the communication.”
If you’re the investor, it’s your job to make sure that you are being understood. And it’s your job to make sure that you understand what’s also implied or said or inferred in a relationship.
“It’s an art form, a skill set to make sure that you know your partners,” Cuntz says. “That’s something there is no formula for. You have to be completely unassuming. My method is I assume that I was not clearly understood and there’s the old saying, ‘Inspect what you expect.’ My first inclination is maybe I didn’t say it right, so I’m going to monitor the response to the communication to make sure that I’m seeing the results to the request. You have to be very, very specific.” <<
How to reach: BlueStar Inc., (866) 830-0140, or visit www.bluestarinc.com.
The Cuntz file
President and CEO
Education: Received a bachelor’s degree in accounting and a master’s degree in finance at Xavier University
What was your first job, and what did you learn from it?
My first job was as a night manager for a fast-food restaurant called Burger Chef. What I took away from that job was that I found out I didn’t have any ability to know I was making a correct hiring decision at the time I was making it. Some people interview well and wind up being terrible employees, and some people are terrible at being interviewed, but they make tremendous employees.
What is the best piece of business advice you’ve received?
Always spend less than what you make. The gentleman I heard that from was my loan officer, Bob Herman, who actually helped BlueStar get going when I became CEO. I asked him, ‘What advice do you have for me, because I don’t want to ever let you down?’ He said, ‘Steve, you’ve got to spend less than what you make and you got to set money aside for contingencies, and the businesses that fail to do that usually don’t make it.’
What do you enjoy most about your job and why?
I really enjoy setting budgets and goals and then hitting them. I’m a very goal-oriented person. It’s kind of an architectural thing. You put it up on the board, and you look at it and wonder if you can build that thing, and then you put together plans to achieve it.
If you could invite any three people, past or present to dinner, whom would you invite and why?
I would love to have George Washington, Albert Einstein and Lou Gehrig to dinner. I would be curious to know how Washington kept it together in the face of that kind of adversity. His skills and leadership just floored me.
Guys like Einstein, I’ve admired my entire life, because I wish I’d been a better science student. Einstein was able to take really complex ideas and make them really simple. I still don’t understand half of what Einstein talked about. And Lou Gehrig, to me, was an icon. He was a natural-born leader and had the respect of his teammates and was one of the first truly great athletes that also was a role model.
Storytellers create interest in their tales by showing the opportunities and desires of characters set against the conflicts and challenges that confront them. Throughout the course of the story, a character grows to resolve these challenges.
Storytellers and story-selling
The same can be said of the stories of selling value in complex sales cycles.
Jane Austen famously used the phrase “sense and sensibility” to refer to human motivations and behaviors in her novel of the same name. Senses and sensibilities identify and provide information and discernment to people. They shape and form character and predispositions, which are impossible to fully describe.
However, insightful authors, such as Austen, have managed to show how the various human sense and sensibilities influence one’s life and behaviors in unimaginable ways.
Seller sensibilities don’t sell
To effectively sell value, the seller must understand the buyer’s senses. The seller must understand what it is that each person involved in a buying choice explicitly seeks.
To do this, the seller must view things from the personal perspective of the prospective customer. This means that the focus should be on buying motives and preferences, instead of selling.
And yet, most businesses and many sales reps forget that the customer wants to buy — not be sold.
The buyers’ perspective
These differences in perspectives cause difficulties for marketing and selling and some of the largest frustrations for buyers. To allay some of these frustrations, the seller must remember that buying and selling are one process, separated only by a difference in perspective.
Sellers tend to sell features and benefits, but buyers want to buy value. However, their idea of value does not necessarily mean a return on investment.
Value sells emotionally
It is said that value lies in emotions, not economics. Sellers must objectively determine and communicate the economic value being offered, but the subjective motivating reasons for a choice are often found in the emotional or personal benefits to be gained.
These advantages should be called values instead of value.
Values differ from person to person, time to time and situation to situation. That’s why so much of successful selling involves empathetically oriented personal interactions.
These values can be broken down into a more focused list of three behaviors and motivations: a craving for a sense of personal importance, a fear or dread of loss, or a desire for minimal effort or investment for maximum gain or success.
It is important to note that these three sensibilities are not the most attractive in human interactions. However, the objective is to be realistic without becoming cynical. Those engaged directly in selling processes may agree that these motivations often trigger behaviors that are not pleasant in normal human interactions but are typically prominent in buying and selling situations.
These primary motivational influences are like the three primary colors — red, yellow and blue. Just like red and yellow can be combined to get orange and blue and yellow make green, the influences can be combined in different degrees to create a virtually infinite palette of behaviors and motivations.
The combination of these most often encountered in sales and buying situations might best be summed up by the human behavioral principle taught by author Robert McKee: “With very few exceptions, humans seek to realize the maximum gain, or satisfaction, with a minimum of risk and investments of time, effort and energy.”
This means that on the first try, a person will do the minimum necessary to try to achieve a desired goal. This minimal effort hardly ever achieves a goal to its fullest extent, so the person will choose to give up or invest more time, effort, energy and risk in the project.
This cycle repeats itself until the goal is achieved.
Thomas M. Nies is the founder and CEO of Cincom Systems Inc. Since its founding in 1968, Cincom has matured into one of the largest international, independent software companies in the world. Cincom’s client base spans communications, financial services, education, government, manufacturing, retail, health care and insurance. For more information, visit http://tomnies.cincom.com/about/.
Call it an elevator speech or a value proposition, but when it comes to communicating messages about your company, a solid 10- to 12-word statement that conveys who you are, what you do and what makes you different is imperative. If you’ve ever needed to apply for financing or venture capital funds, then you’ve been down this road. Creating the right value proposition for your firm takes a bit of thought and often a change of perspective.
Creating the right value proposition forces you to think about what your customers perceive as value. Ask yourself, ‘If you were in your customers’ shoes and they didn’t have your product or one similar — what would happen? Would they lose customers, would they be late for a regulatory finding? Would their car rust faster?’ Next ask yourself, ‘If they bought a competitor’s product instead of yours, what would they be missing? Would they have pretty graphs, but miss detailed information that could pinpoint a potential problem? Would they spend twice the money and delete their weekly pocket cash? Would they get their project started later and encounter administrative hassles that would slow their ability to deliver a critical project?’
Then go a step further. How does it affect the bottom line? Does the subsequent car rust decrease the car’s useful life and make them need to buy another car sooner; does the late project delay the release of a product, or even worse, let a competitor grab the initial market share? If they missed the critical information, could it cause a recall or even brand damage? Begin to think of your product in terms of how it affects the person you are selling to, and then how it affects their company. In very complex sales with multiple buyers, these questions also extend to the political affect on a player and often the impact on their compensation or status in the organization. However, to get a value proposition right, start by putting yourself in your customers’ shoes and asking the basic questions we’ve gone through.
My firm is currently re-evaluating our value proposition to ensure that we are in alignment with what our customers perceive to be valuable. We’ve done our homework, met with several customers and feel that we understand their perception of our value. We entered into a two-stage process. In the first stage, we developed a broader proposition statement that captured who we are, what we do and what makes us different. This statement was: “Clinical Research Management Inc. helps government and commercial customers accelerate research and product development timelines for basic and applied research, through late-stage clinical markets for drugs, biologics and devices. Our customers repeatedly come to us for our extraordinary customer service and ability to craft successful, innovative and knowledgeable solutions for their needs.”
Next, we refined the broader statement and chose 12 words that clearly stated our value proposition. In the end, that gave us the following: “Our innovative and knowledgeable solutions accelerate customers’ research and product development timelines.”
As a corporate leader, once value propositions are truly identified as the path to a customer, you need to ensure that your infrastructure, services/products and capital expenditures align with delivering innovation and knowledgeable solutions for our customers. Requests for expenditures outside of these parameters are potential loss leaders because they won’t align with your customers’ interests.
The most successful businesses are born of ideas that fill an unmet need. Value propositions are the mechanism to institutionalize that concept as you grow. So listen to your customers, get your team together and craft a value proposition statement that identifies who you are, what you do and what makes you different from everyone else.
Victoria Tifft is founder and CEO of Clinical Research Management, a full-service contract research organization that offers early- to late-stage clinical research services to the biotechnology and pharmaceutical industries. Reach her at email@example.com.
In today’s innovative and fast-paced business world, companies have to do all they can to protect their assets, processes and products. This is why the protection of trade secrets is such a vital issue.
There are laws in most states that provide a legal definition of a trade secret. All are essentially the same; the main point is that trade secrets consist of information that derives independent, economic value from not being known to competitors or others that could use that information.
“In other words, a trade secret gets its value from not being known by someone who could benefit economically from knowing it,” says Allan Gabriel, a partner in the Los Angeles office of Dykema Gossett PLLC. “A trade secret gives you protection against others disclosing or using information that has value to your company.”
Smart Business spoke with Gabriel about what constitutes a trade secret and how a company can protect its vital intellectual property.
How do trade secrets differ from patents, trademarks and copyrights?
They differ in a number of ways, most of it having to do with what they protect. A trade secret protects know-how — how you do something. The classic example of this is the formula for Coca-Cola. Other examples include our recent success in protecting software code that processes online employment tests and a sophisticated process to design automotive components.
Patents protect inventions that are useful, not obvious, and novel or new. Trademarks protect brand names — the name the public identifies with the product. Coca-Cola is the brand name for a cola-flavored beverage. Copyrights protect the expression of ideas authored by someone and fixed in something tangible — a book, a movie, or a song, for example.
What elements of a business are eligible for trade secret protection?
A trade secret can cover a formula, a process, a method of doing something, certain customer and pricing information and manufacturing techniques. There’s no exclusive list of what can be covered — if information has independent economic value that is gained by keeping it private, it could be protectable as a trade secret.
How long does trade secret protection last?
Simply put, for as long as the information remains a secret. Take again the Coca-Cola example. The formula has been around for a long time and it’s never been disclosed, so it will remain a trade secret for as long as it’s kept private. There are stories about how the formula is locked in a vault somewhere and only a handful of people actually know it. As long as this is the case, that trade secret protection will last.
This is different from a copyright, which lasts for the life of the author plus 50 years. Eventually, books and movies go into the public domain and are no longer protected by copyrights. Take for example, the holiday movie “It’s a Wonderful Life” — no one owns the exclusive rights to it anymore, which is why you see it all over television in December. Patents, on the other hand, last at most for 20 years after the patent is filed, approved and granted.
How do the courts interpret trade secrets?
In order to establish that a business has a trade secret, it has to prove that it meets the legal definition of one. You can’t register for a trade secret and get a stamp of approval from the trade secret office. To prove that you have a trade secret, you have to show that the information in question derives independent, economic value from not being known and that the information is maintained in a secret and confidential manner. You can’t just claim something is secret if it truly isn’t.
Consider a company that claims that the identities of its customers are trade secrets. If that company posts a list of its biggest and best customers on its website, then the information is public and therefore not eligible to be a trade secret. On the other hand, if a company makes an esoteric product — maybe a particular part or electronic component — and it’s hard to tell exactly who would buy it or be able to use it, then the identities of those customers could be protected as a trade secret, since a competitor could benefit economically from knowing who those customers are.
Another interesting aspect of trade secrets is that they can be negative information, meaning they can cover what not to do. For example, if a company manufactures a particular device and has a facility that’s closed to the public, and that company has spent years figuring out what manufacturing techniques do and don’t work, information regarding the techniques that don’t work could be trade secrets.
How should confidentiality agreements be crafted to protect trade secrets?
While it’s always a good idea to have confidentiality agreements to ensure that employees keep information secret, trade secret law independent of confidentiality agreements provides such protection. For example, if I worked for Coca-Cola and was one of the few that knew the secret formula, I couldn’t legally just go to Pepsi and reveal that formula, regardless of whether or not I had signed a confidentiality agreement.
Still, confidentiality agreements are important because having them represents evidence that you truly have a trade secret. You are taking reasonable steps to designate, define and protect what you feel is a trade secret. However, make sure that your confidentiality agreements are not too overreaching — you can’t say everything is a secret, like an accounting firm saying that its use of Excel spreadsheets is a trade secret. Confidentiality agreements should be narrowly drawn, specific and understandable.
Allan Gabriel is a partner in the Los Angeles office of Dykema Gossett PLLC. Reach him at firstname.lastname@example.org or (213) 457-1706.
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 email@example.com or (248) 646-5070.