Weigh the pros and cons before changing how your company is held

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.

Q: What are some of the differences between running a public company and a private one?

A: No. 1. You have tremendous access to capital with a public company. That is really the reason why you would take a private company public. You can get money by selling stock. Private companies often face situations such as lenders tightening up requirements when seeking money. If you want to grow, it’s harder to get money these days than in the past.

No. 2: There is a loss of privacy when you take your company public. With a private company, no one knows anything about your business unless you tell them. But a public company has to expose a lot of detail about itself on a regular basis.

No. 3: Cost. A public company can save money by staying private. There are the cost of stringent Sarbanes-Oxley audits and preparing regular financial information. A listing on the stock exchange costs money and means spending for a PR department. Becoming publicly held really adds a layer of cost.

No. 4: Going public gives you instant liquidity. If you are a private company for 20 years and you have investors, it’s hard for them to get out unless you sell the company.

If you are a public company, your investors can liquefy their holdings whenever they want to. My company Invacare Corporation was private for five years, it went public, and the new status gave all my investors a chance to cash in. Some kept their stock, some sold their stock. That’s always a wonderful thing for an investor in a company.

Q: How do you remain innovative as a public company leader yet balance quarterly earnings and daily stock price pressure?

A: Do what you always have done to be innovative. Don’t spend a lot of unnecessary money trying to reinvent the wheel. Now that you have access to capital and plenty of money, you can acquire a company rather than start one from scratch.

I built my company in Europe and made a number of acquisitions. If I had done it internally, it would’ve taken me forever. Let’s say you want to enter the German market. If you start from scratch, you’re going to have losses, which aren’t deductible in the U.S., versus acquiring a company in Germany that is already successful. It’s already doing what you’re doing and you are geographically expanding without reinventing the wheel.

You seek a balance between short and long-term. If I said you shouldn’t be concerned about short term, it would be a lie. You are. But if there is no short term, there is no long term. Don’t look at the daily stock price. The price reflects the future, not the past. It’s what the market thinks the company is worth down the road.

The market hates two things: surprises and poor results. Once you’re public, you have to have enough courage to believe you can get results — and be honest with the Street.

A look inside the world of M&A from leaders who have seen it all

John D. Rockefeller was a pioneer in the oil industry. He took such an aggressive approach to building and growing Standard Oil Co. in the late 1800s that the federal government felt it had to respond and prohibit monopolies.

He switched gears during the second half of his life and devoted himself to philanthropic causes, giving more than $500 million of his wealth — a lot of money today, but even more in the early 1900s — to help his fellow man.

Rockefeller revolutionized the oil industry and shortly thereafter, Henry Ford gave us cars that could be fueled by that very same oil. Walt Disney created “The Happiest Place on Earth,” Phil Knight helped transform the way we look at shoes and Jeff Bezos created a website where consumers can buy just about anything.

Each one of these business pioneers had a dream and an idea to change the world and refused to stop until it had been done, no matter how many challenges arose along the way. It’s the mindset that another wildly successful entrepreneur, billionaire Mark Cuban, has followed in his journey through life and business.

“I don’t care if you’re working a counter at McDonald’s or as a bartender like I did or as a doorman like I did, when it fails, whatever it may be, you’re going to learn,” said Cuban, in a 2011 cover story in Smart Business. “You’ve got to take that positive orientation to it and develop your skills.”

Cuban applied the lessons from his failures to co-found HDNet, buy the NBA’s Dallas Mavericks and become a TV star on ABC’s “Shark Tank,” among countless other accomplishments.

Every entrepreneur has a different approach and a unique way of viewing the world. But at the end of the day, they all understand the power of relationships when it comes to making things happen.

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Our inaugural ASPIRE 2016 Conference is a wrap! Click on the image to take a look back at the day-long deal-making event.

“It’s the ability to sit down and talk, whether it’s breaking bread at lunch or dinner or just taking an opportunity to get to know somebody,” says Umberto P. Fedeli, president and CEO at The Fedeli Group. “Get to know their background. Get to know how they built their business and how they make decisions. How they decided to do this and how they decided to do that.

“Initially, it may not even be about the business or the transaction. It could be about family, a hobby or something that you both have in common. You build rapport, get some common ground and that’s how you arrive at a deal that becomes a win-win.”

The Fedeli Group is one of the largest privately held risk management and insurance firms in Ohio. Fedeli the individual is an active investor who has achieved tremendous accomplishments, both in business and in philanthropy in Northeast Ohio. He knows how to bring people, and companies, together.

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Umberto P. Fedeli, president & CEO, The Fedeli Group

He also understands that as you’re building that foundation, you are thinking about the end game the goals for both you and the person you’re negotiating with. One skill that all good entrepreneurs bring to the table is the ability to ask a lot of questions and get something useful out of every conversation.

“You should have a whole discovery process where you ask a lot of questions and find out what’s important to this person and what their goals are,” Fedeli says. “Try to find out how they process information, how they think, how they make decisions, what their concerns are. As much as you can, ask appropriate questions, and then do a lot of listening, that’s what you want to focus on.”

Acquisitions and cultures: The right fit is the bottom line for both; make your decision after careful research

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.

Q: I’m been growing my business organically the past several years and have concluded that in order to accelerate growth, I need to look at acquisitions. From your experience, what are the top factors to consider when evaluating the type of company to acquire?

A: I think it is essential to include acquisitions if you have a long-term growth plan. At Invacare Corporation, we wanted to grow 50 percent organically and 50 percent by acquisition. You can set it at 60/40 or at anything you want. It just felt like 50/50 was right.

During the period I ran Invacare, we did more than 50 acquisitions. They generally fell into three categories:

  1. Geographical expansion, such as in another area of the country or a foreign country.
  2. A new product line that uses your current distribution system. For example, wheelchairs and beds, in my business, are sold through the same channel, to the same people, to the same customers.
  3. Consolidation of your industry. As an industry consolidates, you should become a much stronger player and improve your sales and margins. Improved profitability is consistent with improved market share.

As far as what you look for, we always had an acquisition team to examine a business in every way they could. You can’t collect too much information. Sometimes even casual conversations are as important as formal presentations.

Try to find out if the business proposition is presented fairly and if you understand everything going on.

I never did an acquisition that wasn’t accretive to the shareholder. It always added to my earnings. We were able to do acquisitions because we had a good, positive cash flow and a solid line of credit from the bank. If you don’t have good cash flow and you don’t have a lot of credit, forget it.

Q: How important is culture when merging two organizations, and what pitfalls exist when trying to merge two cultures that may not perfectly mesh?

A: There are always issues with culture when merging two companies. In my case, I always thought that Invacare was the preferred culture. But we were always sensitive to other companies’ cultures and tried to blend them in over time.

You must recognize there are usually redundancies, particularly with infrastructure. For example, you don’t need two presidents. Take action fairly quickly. Morale will fall in the acquired company if you don’t show that they are loved and accepted by the new company.

If the acquired company won’t move its facility, and you need them, you’ve got to compromise. That’s a difficult subject but the important thing you want is one and one to equal three.

By putting the two companies together, you want the merger to be better than if they were alone. You have to be sensitive to that, use common sense and do the best you can. If you’re insensitive, you may destroy the company.

The art of decision-making may boil down to assessing your instincts

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.

Q: When deciding on a business matter, did Mal ever proceed with his gut feeling rather than data? Do his experiences ever trump data?
A: When making investments, the gut feeling has to be there. If you are looking at investments, has anyone ever shown you projections that go down instead of up? No, they don’t. They all go up, and that is my point.
But if you don’t have a good gut feeling about the opportunity, if you don’t feel right about it, if you don’t sense there is an opportunity, it won’t work. Most of the time, if you have a good gut feeling, it will work out. But if you don’t have that, the opportunity rarely works out.
When I was running a business, I looked at data a lot when it comes to business decisions. The same principles apply. You should also have a good gut feeling about business decisions.

Q: What about someone starting out? Are you born with the ability to sense your gut feeling or can you develop it?
A: Well, I think it is a collection of life’s experiences. Like Warren Buffett says, “Never invest in a business you don’t understand.” I don’t like to invest in businesses I don’t understand, so I stick with basic businesses as opposed to software or computers. I’m not an expert in these areas. Most of the investments I have made have been in the likes of medical products, vacuum cleaners and banks.
When I was talking with physicians about developing a sterilization company — that has become Steris — my gut feeling was, ‘Hey, this is a good opportunity.’ It had nothing to do with looking at data or numbers. I just felt we could do it.
Steris is now a $1.9 billion global company with 8,000 employees focused on the health care, pharmaceutical and research markets. Steris is merging with Synergy Health plc, which will add even more to its value.
When I bought Invacare, the numbers made sense. My gut feeling told me I was ready to run this thing. We grew from $19 million to $1.8 billion.
Numbers are helpful, but if you don’t feel right about it, don’t do it. Even when everything seems right, you’re going to be wrong once in a while. Timing is important as well. Nobody had flown before the Wright brothers. But they believed; their gut feeling was that they could fly.
Sometimes you have to make a decision before you get the data. A lot of small companies can’t even publish the previous month’s results until a month later. They say, “Well, I’m not going to make any decisions about December until I get November’s data.”
Well, you don’t until the end of December so sometimes you have to make decisions without perfect data.

Follow these six principles, and you’ll develop strong leadership skills

Editor’s note: This is another installment of “Ask Mal.” Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.

Q: I’ve just been promoted into management and would like to ask what you consider the most important principles of leadership?

The leadership principles I learned in the Marines and from my experiences are timeless. They are:

  • Set yourself as an example. Don’t ask your associates to do more than you do. In business, if you are unwilling to take the red-eye to California or to confront tough problems, how can you expect your people to do that?
  • Develop loyalty downward; care about your people first and not yourself. Listen to what all your associates want to say — usually their opinions are quite different. The important thing is to listen. Get their input before you make important decisions. You are only as good as your team. Become interested in your teammates and their families as people. You have to understand them and individually deal with any issues.
  • Make integrity a priority. Never make a promise that you do not intend to honor or keep. That is simply a matter of ethics. Never lie to them. Sometimes we agree on a matter and it may not work out the way we had hoped, but I think it is important to follow through. Sometimes, it is persistence that causes it to happen.
  • Keep your tenacity and resolution strong. Cultivate an unfaltering determination to achieve your plans and goals. Some people may become discouraged easily when something doesn’t quite go right. They may think, ‘Well, I can’t do that; the competition did this.’ You really have to have a killer mentality about getting it done. If you think you can or think you can’t — you are probably right.
  • Become an expert in your profession. A snow job never works. When a new associate is hired at a company, if that person is a phony, within 30 days everyone will know it. You can’t fool people very long. I’ve always advised people to become an expert at something; become a great marketer, a great engineer, a great operating person.
  • Emphasize courage and honor. Face difficult problems and circumstances squarely and lead where others may be apprehensive or unsure. Leaders have to tackle the tough problems and not the easy ones like those you get off your desk right away. You have to have the mentality of ‘I like to deal with problems. I like to fix things. I know when I fix it, the company is going to be a lot better.’

Top management’s most important function is leadership. I first wrote down these leadership points more than 30 years ago, and I don’t think my views about leadership have changed at all since then. Looking back at the tests my company has had — expansions, acquisitions, trials of running out of money and changing computer systems, which almost brought us to our knees — we’ve always been able to get through them. They made us bigger, better and stronger.

Mal Mixon is the former CEO and chairman of Invacare Corporation. A complete story of Mal’s rags-to-riches journey is told in his book, “An American Journey,” published by Smart Business. It can be found at www.anamericanourneybook.com and on Amazon.com. 

Making smart, proactive decisions will help ensure company safety, continuity

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected] and your query could be the inspiration for his next column.

Q: What are your thoughts on formal contingency plans for manufacturers to handle significant problems that may arise? There seems to be more of a focus on these in recent years, and even though the costs may be high, the tangible and intangible returns for companies also may be high.

A: You can’t plan for all contingencies, but you can make some smart prevention decisions. The first one is to ensure that you have a safe, working environment to prevent injury or death involving your associates. Form a committee to deal with operations safety. There are always safety improvements to make; it’s an endless process.

You also should have a committee that deals with product safety. If a certain design creates a danger to the consumer, you are duty-bound to either recall the product and correct it or deal with it properly. Sometimes that is expensive, but you want to correct the matter.

A third area is an emerging and important one — associate safety. You may have an associate at any time who has mental or other problems, and you want to be aware of them should a situation arise. One of the proactive steps a company can take is to have a confidential counseling service available to their associates.

Also, I recommend companies have a security officer or a detail to help prevent irate associate entry — a security system that protects associates from that danger. You don’t want the crisis of having any associates murdered or injured. The security detail can also walk around the property to search for fire or theft trauma.

A fourth area is one that a lot of companies find out the hard way. Company information systems should be backed up so that if your computer system goes down and you lose a lot of data, you have a backup in a safe place so you can restore what has been lost.

All contingency planning, except information systems, has to do with human safety. Whether it is operations safety, product safety or security, all those issues are involved in the safety of the product user, the safety of the worker in the environment and the safety of the associate from the security point of view.

Q: What precautions should be taken when an associate goes to a foreign country?

A: Another concern is if you have an executive who goes overseas and may be taken hostage for a ransom. One of the easiest things you can check is the Department of State safety ranking for travel in that country and what things to look for, whether you should have a bodyguard, how and where to travel and what areas to avoid.

A second precaution is to consider purchasing hostage insurance. This usually includes coverage for money paid to extortionists or kidnappers, loss of ransom money in transit and other expenses involved in a kidnapping.

To solve problems for the customer, it starts by going out into the field, Mal Mixon advises

Mal Mixon always enjoyed selling.

“You learn more about your company selling. But I can guarantee that if you think your company is good, let me go out and sell, and I will tell you 10 things you are not doing that you should be doing,” he told an audience at the inaugural Friends of the Cleveland Public Library Executive Speaker Series in June.

“In the field, people will tell you they want things for say, less money, at a lighter weight or in a different color.”

The Executive Speaker Series was established to bring together champions of industry and state to the Cleveland Public Library campus to share philosophies, insight and experiences gained throughout their careers. Andrew Jackson, president and CEO of Elsons International, moderated the discussion.

Mixon, the retired CEO and chairman of Invacare Corporation and author of “An American Journey,” spoke about the opportunities he was able to take advantage of during his career.

Known for his “can do” attitude, Mixon took a big risk and bought his first company, Invacare, in a leveraged $7.8 million buyout. He grew the company’s sales from $19 million to almost $2 billion.

Mixon said at Invacare he went into the field every month for 40 years. The face time with the customer was important not only to maintain the relationship but to determine if there was satisfaction or dissatisfaction with the company’s products. He cited an example to illustrate his point.

“We were having some quality problems at Invacare, and I went to see this guy in Phoenix. He chewed my tail out for an hour,” Mixon said. “I said, ‘You’re right, you’re right.’ I answered all his questions and told him what I was going to do.

“Then he took me down to meet the purchasing agent, and he told the purchasing agent, ‘From now on, I don’t want you to buy anything but Invacare.’” What brought about the happy ending was Mixon taking responsibility for the problem.

“If you’re wrong, admit it. Don’t sweet talk the customer to tell him you don’t have a problem. Be a problem solver,” he says.

Mixon, who holds a master’s degree in business administration from the Harvard School of Business, said he moved from a marketing position into sales at his first job after Harvard.

“I said to myself, ‘I could never lead this organization if I don’t learn how to sell.’ So I asked for a territory. I did pretty well. I was making more money than where I was before,” he says.

He credited his boss, E.P. “Pat” Nalley, who taught him about selling and put him in circumstances where he was able to learn.

How to reach: Friends of the Cleveland Public Library Executive Speaker Series, www.friendscpl.org/executive-speaker-series

Be patient and wait for success to arrive; do what is necessary to win

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected] and your inquiry could be the inspiration for his next column.

Q: You write in “An American Journey” about the opportunities you took advantage of. What if you were graduating now with your master’s degree in business administration? What trends do you see?

A: I’ve been on the Harvard Business School advisory board the last few years, and today’s graduates want to work on Wall Street where starting salaries are phenomenal — much higher than industry. Fewer graduates want to work for a company. One of my classmates runs a huge company and says he doesn’t even recruit at Harvard Business School anymore because he can’t compete with Wall Street.

I think if you go into business, you start at a certain level and work your way up. A lot of the graduates today want success a little too fast. But there is not much I would change about my life. Every job I took I tried to be the best I could be, I learned and then I got promoted. I performed, but had to strike out on my own to be a CEO.

I was good at sales and marketing, and my superiors did not want to take me out of it. If I had to do it all over again, I\ wouldn’t do anything differently.

Q: I am in sort of the same situation you were in at 36 years old. I have a family business. I look for companies to buy that I think would add value, too. It’s a very difficult environment. I don’t have a lot of money. What sort of advice would you give me if I were to try to do what you did today?

A: A lot of people say they want to buy a company, but I am not sure they want to do the things necessary to complete a transition. It’s more difficult today; there is more competition. You have to let lawyers and accountants know and talk to everybody you see. I would say it generally takes a year, unless you are lucky, to find an opportunity.

Here’s a story I’d like to tell you: I once bought a company with zero money. I was walking my dog on a Sunday afternoon, and I ran into my lawyer friend Bob Gudbranson. He told me about a deal, I later put together a finance package and received a spectacular return.

It looked like I was required to invest $3.3 million. I was able to do a sales-leaseback for $2 million on the property. Secondly, $1.5 million in receivables (from highly reputable companies) could be purchased for $1 million. So I borrowed $1 million secured by the receivables. I paid back the loan, took the profit on the receivables after tax and invested it in the company.

You never know from where your next deal will come. Just be on the lookout and let people know you are seeking an opportunity. Also think about putting your investment group together. If you find an opportunity, you’ve got to be able to put it all together financially.

A complete story of his Mal Mixon’s rise from rags to riches is told in his book An American Journey, published by Smart Business. It can be found at www.anamericanjourney.com and on Amazon.com

Keep new products in the pipeline and ‘bearding the lion’ — making the difficult sell

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected] and your query could be the inspiration for his next column.

Q: I’d like to know your thoughts on the role R&D plays. What is a realistic percentage to spend on R&D? Is there a rule of thumb?

A: There’s no rule of thumb but a lot of the best medically oriented companies will spend around 10 percent. Even 12 percent in some cases is not exceedingly high.

I read an article once about the problems of sustaining R&D. When you are a CEO, frequently the new products you launch were developed with money spent by previous CEOs — because of the timeframe it takes to bring new products to market.

So you are enjoying your previous predecessor’s work. It is easy for the current CEO to cut R&D because these are longer-term dollars. If you are looking for immediate results, cut out your R&D, and it will just increase the profits by, say, 10 percent pretax. But in the long run, it will slow down new product development, and the company probably wouldn’t have the leadership later it enjoys today.

But you always want to offer something new. It generates excitement. As soon as Invacare introduced a new product, we started the design of the next model because everything can be improved. I don’t believe in the old saying that ‘If it ain’t broke, don’t fix it.’ It can be better, lighter, lower-cost, have better functionality and appearance.

When you are developing products, you really want to find the sweet spot where there is the greatest demand for the product. Sometimes an engineer will design a product that is so complicated no one will buy it. Other times the marketing department wants so many features on it that it is too expensive. So you’ve got to get both of them working together and find out what does the customer really want. You think people may pay for this feature but they may not want it.

But the essential thing is that you do have new products in the pipeline and that you do replace products.

Q: You’ve probably seen all types of sales people in your career, and I understand you started your entrepreneurship journey in sales. What’s your advice to achieve successful sales?

A: I was always delighted personally in using my ability to get an order where no one else was able to get one. It’s called ‘bearding the lion in his den’ — in the broad sense, confronting someone on his or her territory … you cut the lion’s beard off without it eating you alive.

You have to be persuasive, and you have to have good reasons for the person to buy from you. You need to be prepared for the call and deal with the reality of the situation. It may be that the person is basing his or her purchasing decisions on wrong information, as is frequently the case.

A lot of people would fear going into a messy situation or calling on a competitive account. But by taking that step, you stimulate your sales organization: if Mal can do that, I think I will try it.

Mal Mixon is the former chairman of Invacare Corporation. A complete story of Mal’s rags-to-riches journey is told in his book, “An American Journey,” published by Smart Business. It can be found at www.anamericanourneybook.com and on Amazon.com.

 

 

 

 

 

 

Ask Mal: Two attributes you need, and a lesson on changing people to perform better

‘Ask Mal’

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.

Q: If you had to pick two qualities an entrepreneur needs to succeed, what would they be?

A: Optimism is one. A real entrepreneur to me never seems to get down. Entrepreneurs always see the positive side of everything.

The second quality is determination. They just try and try and never allow a negative event to stop them. They keep going and going. Here’s a joke I would like to tell you.

A father had two sons, one a pessimist and the other an optimist. He thought he had to cheer up his pessimistic son, and kind of dampen his optimistic son. So for Christmas, he bought the first son the fanciest computer and software he could find. But the son was very disappointed with the gift. It wasn’t the latest in his mind, and he found everything wrong with it.

For the second son, the father took some horse manure, put it in a box with a red bow around it and placed it under the Christmas tree. The optimistic son opened the present, and disappeared into the pasture for half an hour. Finally, he came running into the house, and he put his arms around his father’s neck, and said, ‘Daddy I can’t thank you enough for my Christmas present?’ The father said to his son, ‘How can you get excited about horse manure?’ The boy said, ‘Daddy, I know there has to be a horse around here somewhere!’

The point here is that no matter how bad things get, an entrepreneur is optimistic. Entrepreneurs are determined and won’t take no for an answer. They keep coming back and are almost impossible to get down.

Q: How do you get a talented but unmotivated employee to perform better?

M: I would like to say you can change people, and I have attempted it over the years, but I have never been able to change anyone. As hard as I have tried, I found it difficult to change a person’s weaknesses. You are better off concentrating on their strengths rather than trying to get the person to change.

Management generally spends too much time working on employee weaknesses. Time is better spent emphasizing the positive and nurturing employees who can really perform.

I call motivation ‘fire in the belly.’ You either have it or you don’t, and you develop it early in life. A lot of people may be very bright, but they are not competitive. At the first sign of blood, they turn the other way. It is more important that you have this mental toughness and motivation than just sheer ability.

If you think you can or you think you can’t, you are probably correct.

Secondly, most people in business succeed because they have great people skills. The important thing to realize in business is that you are not a one-person band; you are part of a team. You only win when the team wins. If you can’t fit in with people, and you can’t get the team to do anything, you’re going to fail in your job.