Business Advisory Boards

Recently we’ve had a couple of clients ask us if they should have an advisory board and, if so, how they should go about building it.  First, we think all businesses should have an advisory board.  Perspective and experience on a wide variety of issues is an important commodity for a business owner to have available.

Often times, within our companies, we have accepted common views on topics.  As a result we are not able to generate enough perspective to accurately assess opportunities and problems.  Outside perspective is critical so that we don’t fall victim to group-think conformity and uncritical acceptance of ideas and conclusions.

Advisory boards also bring additional business knowledge and expertise to the table.  Verne Harnish of Gazelles has also written about Advisory Boards, or Councils, “The three most important pages ever written for business leaders are pages 114 – 116 in Jim Collins’ landmark book Good to Great. It’s a bold statement, but I’ve seen the transformational impact on leaders and their growth companies when the concept on these pages is implemented.”

The key, as in building a strong company, is getting the right people to serve on your advisory board.  Look for people who are not afraid to speak their mind when they disagree with something.  The last thing we want are folks who agree with almost everything and anything.  Those folks won’t bring valuable perspective.

Adding some people who don’t know the industry can be valuable because they don’t just accept the “norms” without question.  Look for specific skills like IT, HR, Finance, Marketing, etc.  Have a written and agreed understanding of what is expected of them,  such as being prepared for quarterly half day meetings and committing to making at least three a year.

Be willing to pay them an appropriate stipend for their meeting and prep time.  Consider what a senior level person would make and pay accordingly.  When you pay them well you can hold them accountable, too.  Finally, run all meetings with an agenda sent out at least a week before the meeting.  To get the most out of your advisory board, you must be prepared and model the behaviors you expect from them.

Building an Advisory Board is similar to building a management team.  It takes time, some trial, error, and corrections to get it right.  At the end of the day it is an extremely important part of any successful business.

Keeping Top Performers

As the economy improves (this is a “when” not an “if”), keeping your top performers can be a challenge. Right now it is an employer’s market. When the economy improves it will become an employee’s market and your top performers will be able to jump ship without worrying as much about where they will land.

To keep your top performers consider the following steps:
  1. Meet with them and really listen–simple but powerful.
  2. Discuss their performance. Ideally this is done with the aid of some sort of “position scorecard” that lists the things they have been accountable for doing and a rating or measure of how they’ve done. For example, if a person is responsible for customer satisfaction, satisfaction might be measured by a survey of customers.
  3. Assuming your top performers are true top performers, the scorecards will be positive and give you an opportunity to express appreciation for their efforts and success.The conversation can naturally flow into “where would you like to be in 3-5 years” and “what can I do to help you get there and keep you working at a high level for us”.
  4. Probe for motivation. The art of appreciation is taking into account what motivates a person. Telling someone who does a task well, that you appreciate their ability to get things done, means a lot more to them than saying the same thing to someone who is motivated to be part of a team and get along with others. In the latter case you want to convey that you appreciate their contribution to the team and their loyalty, for example.
  5. Probing for motivation can be tricky. Money, work/life balance, prestige, managing others, accomplishing tasks, being part of an effective team are all important motivators. Sometimes people are not clear about what motivates them and cannot accurately answer questions about what is motivating. The art of this is noticing the person’s behavior over time and divining their motivation. Giving them more of what motivates them makes them want to stay. Do not make the common mistake of assuming that someone else is motivated by what motivates you.
  6. Ultimately, if you have trouble divining another’s motivation, generic appreciation is better than none at all. While I won’t go as far as saying, “appreciation is the #1 important thing for employees”, it is true for the majority of employees, especially the ones you want to keep around. The exception is the entrepreneur or CEO (or wannabe). Appreciation is not as important to this type of person. This sometimes makes it hard for the top person to express appreciation to others–if I don’t need it, why should they.
  7. One more note to complicate matters further. Perhaps you’ve heard of the phrase, “hierarchy of needs”. A person’s need for money follows this theory which is basically, once you’ve taken care of surviving and then being comfortable, money stops being as powerful a motivator. It’s like food or shelter. If you don’t have them, that’s all you think about getting. Once you have them and don’t have to worry about them being present, their importance diminishes until they are dwindling again….
While listening to and appreciating a top performer is no guarantee of keeping him or her, it goes a long way toward keeping your company’s grass greener than where they might go. It also is a key part of establishing a positive organizational culture–helping to both retain and attract top talent.
Best wishes in your efforts to retain top performers!

The Importance of Family Owned Businesses

It can be said the family businesses serve as the brains behind innovation, the heart behind local philanthropy, and the nerve system of our entire free enterprise system.  Over 90% of all US firms are family owned.  They employ 62% of the country’s work force and create 78% of the new jobs.  Furthermore, they contribute some 64% of our total GDP.

A recent University of Connecticut study showed that 79% of family owned businesses incorporate socially responsible practices into their business.  And 80% of them emphasize family or core values in the operation of their firms.  They are less likely to lay people off when times are bad, looking instead for other ways to keep the “family” together such as reduced work hours, etc.

We, too, suggest that companies that have strong core values have an advantage in the market place.   As Jim Collins in his Harvard Business Review article “Building Your Company’s Vision” states, “Core values are the essential and enduring tenets of an organization.  A small set of timeless guiding principles, core values require no external justification; they have intrinsic value and importance to those inside the organization.”

Family businesses often grasp this concept well.  When people are hired who share the core values of the business, its culture is strengthened.  When people are hired for experience only, businesses can run into value conflicts.  Keeping US family businesses at the foundation of our economy requires a defined set of core values. Contact us if you would like help defining and/or getting your employees to live your core values.

Reprint – Why Do Business Owners Fear Exit Planning?

An interesting and noteworthy article to review:


Reprint – Why Do Business Owners Fear Exit Planning?

By Bob O’Hara

Vital not only to their future, but to that of their company, an exit plan is a business owner’s best defense against the unexpected. Yet, some otherwise savvy entrepreneurs will delay the process due to fear of conflict, of losing control or of not having enough financial reserve to support their lifestyle post sale or transfer.

With a comprehensive action plan, backed by the support of a team of advisors, even the most apprehensive business owner can see beyond the fear and build a successful future for all involved — self, family and the business. But first, you must define and overcome the obstacle(s) that have held your exit plan hostage.

Transition of Authority—Fear of Conflict

For some, the fear of conflict can hold up the works – particularly if the business is family owned and operated or if key employees are not members of the family. An exit plan establishes a hierarchy of authority and some business owners see this as pitting one child against another … or a child against a highly valued yet unrelated employee. The long-term good of the company is the ultimate goal; the transition of authority must be based on the ability to perform.

An honest assessment must be made of who can best helm the business upon your departure; while you want to believe your children are chips off the old block, they may not have – or want to have – the same skill set that helped you grow your business successfully.

Now is the time to determine if your successor currently exists within the company. Perhaps that individual is not ready for the position today but might have the ability to take over in the future; if that’s the case, some additional training may be in order.

Recognize that sometimes, in the name of “keeping the peace” business owners will relegate top level authority to the “wrong” employee. That individual might be an offspring, sibling or an unrelated staff member who has been with the company through the good and the bad. Or even worse, some avoid the situation completely, duping themselves into believing that the issue will one day resolve itself naturally. In reality, that rarely happens; instead chaos occurs in the absence of a clear line of authority or succession plan in place and the exact conflict the owner has avoided happens anyway.

Loosening the Reigns —Fear of Losing Control

Fear of losing control is also high on the panic button list. While most owners are realistic enough to recognize they must vacate the helm at some point, fear that the company will fail to succeed in the absence of their leadership can be a driving force to no action. And herein lies the irony — this concern will undoubtedly become reality since the owner failed to plan for his or her certain and eventual departure.

But by identifying and mentoring the key employees that will someday operate the business, the owner allows his or her vision of the future to be embraced by the next generation of management … while at the same time guiding their direction through experienced counsel. What some business owners fail to grasp is that stepping down as head of a company does not necessarily translate into stepping away completely.

Achieving Financial Freedom — Financial Fear

And then there is the financial fear, the worry that you may not reap enough monetary benefits to truly enjoy retirement. You should recognize that a sound exit plan is not unlike a crystal ball. If properly prepared with the assistance of key professionals, a plan can provide an insight today into your company’s future worth, and how that worth will translate into after tax dollars to fund your retirement. The comprehensive exit planning process should also calculate how much you need in non-business assets to achieve financial comfort independent of your business. Knowing the answers to these questions can mitigate this fear and put the owner on a course to achieving financial freedom.

Beyond the Fear Factor

Once fears are identified, conquered or at least set aside, it’s important to realize that no matter how skilled or experienced a business person you are, executing an exit plan is not something that should be done solo. A successful exit plan involves a number of elements – legal, financial, tax, to name a few. It is in your best interest to hire an experienced team of professionals, including an attorney, CPA and financial advisor/planner to assist you through the exit plan process.

Ultimately, your succession plan must integrate your exit desires – when you want to leave, how much money you need after business ownership and who you want to own the business. Exit planning is indeed a long and often emotional process. However, the benefits of a well-thought-out and documented succession plan can be invaluable. By overcoming the fears associated with the eventual “good-bye” everyone involved – you, your family and your key employees – will benefit when it comes time to hand over the company keys at some future tomorrow.

Bob O’Hara, CPA/PFS, MST, CExP is President/CEO of O’Hara & Company, PC founded in 1995 to address the growing need for entrepreneurs to create a comprehensive exit strategy from their businesses. O’Hara & Company hosts an educational website for business owners at www.exitplanning-edu.com. The company is located at One Olde North Road, Ste. 101 in Chelmsford MA. For more information please visit www.oharaco.com or call 978-244-9860.

CEO Succession Planning an Overlooked Task

More than half of companies today cannot immediately name a successor to their CEO should the need arise, according to new research conducted by Heidrick & Struggles and Rock Center for Corporate Governance at Stanford University. The survey of more than 140 CEOs and board directors of North American public and private companies reveals critical lapses in CEO succession planning.

“The lack of succession planning at some of the biggest public companies poses a serious threat to corporate health – especially as companies struggle toward a recovery,” says Stephen A. Miles, Vice Chairman at leadership advisory firm Heidrick & Struggles and a global expert on succession planning. “Not having a truly operational succession plan can have devastating consequences for companies – from tanking stock prices to serious regulatory and reputational impact.”

Stanford Graduate School of Business Professor David Larcker adds, “We found that this governance lapse stems primarily from a lack of focus: boards of directors just aren’t spending the time that is required to adequately prepare for a succession scenario.” Professor Larcker is a senior faculty member of the Rock Center for Corporate Governance, a joint initiative of Stanford Law School and the Stanford Graduate School of Business.

The 2010 Survey on CEO Succession Planning, conducted this spring, surveyed CEOs and directors at large- and mid-cap public companies in the U.S. and Canada, with 10% of respondents also from large private firms. Key findings from the survey include:

A full 39% of respondents cited that they have “zero” viable internal candidates. “This points to a lack of talent management and not paying enough attention to your ‘bench,’” says Mr. Miles.

On average, boards spend only 2 hours a year on CEO succession planning. “The full boards of respondents’ companies meet, on average, five times a year. Succession planning is discussed at only two of these meetings, at one hour apiece,” says Professor Larcker. “The nominating and governance committee – who often take primary responsibility for succession planning – did not fare much better; respondents reported that only four hours of meeting time is typically devoted to this topic each year.”

To read the full article see here.

30 June 2010 Exit Planning Event

A group of New Hampshire business owners and their advisors were treated to an overview of John Leonetti’s approach to exit planning by the author himself today at the 100 Club in Portsmouth, NH.

Mr. Leonetti is the author of Exiting Your Business, Protecting Your Wealth: A Strategic Guide for Owners and Their Advisors. He covered his process for determining the mental and financial readiness of an owner contemplating an exit as well as what exit options are dictated by the readiness levels of the owner. Exit options included Strategic Sale, Recapitalization, ESOP, Management Buyout, and Gifting.

Please use the contact us page to forward any questions or to put yourself on the mailing list for the next presentation based on the process outlined by Mr. Leonetti.

Are You Making An Impact?

In the midst of a series on influencing others on the site www.intellectuscoaching.com, I pose the question, “are you making an impact”?

People and products that make an impact are exceptional and stand out. People and products that fail to make an impact are quickly forgotten.

If your product or service impresses, moves, or otherwise “wows” people, your challenge will be supplying enough. Apple computer has, for the most part, mastered the art of making an impact. Consider both the iPod and iPhone.

If your product or service does not make an impact, the product or you become a commodity–something that is useful but not indistinguishable from other similar products or services. Think of laundry detergent, “light beer” or your typical grocery store.

We see marketing campaigns aimed at differentiating products that are commodities all the time. For example, beer marketing campaigns tell us how a particular beer is different and better, while blind taste tests of beer fail to indicate much quality difference between brands.

Is your product or service a “commodity”? Look to the example of Apple or better still, Zappos.com, to learn ways of distinguishing your product or service from the competition.

When it comes to you as an individual, are you a “commodity”?

The fact is that most of us are commodities. Our efforts, even if competent and conscientious, fail to make an impact or if they do, the impact is short-lived.

Superstars in the worlds of sports or entertainment, make an impact with their performances and do so consistently. Superstars in the world of business do the same.

Look for ways to make an impact through the clarity of your thinking, the creativity of your ideas, the value of your “outside the box problem” solving and, perhaps most importantly, by adopting the priorities of your boss or customer while getting things done. Working hard and being competent are good but not enough alone to raise your value from commodity to stand out.

Ask yourself, “how do I make and impact”? Focus on being more than just competent and conscientious. Think about how you can make an impact!

Exit Planning Gap Calculator

Vital Growth Consulting Group is pleased to announce the publication of its Exit Planning Gap Calculator tool.

The Exit Gap Calculator is available on the Vital Growth Consulting Group website. It is intended to provide an estimate of the financial gap between the CURRENT VALUE OF A COMPANY and the VALUE NEEDED TO EXIT AND MAINTAIN  THE OWNER’S CURRENT LIFESTYLE.

The Exit Gap Calculator tool does not gather or record identifying information and may be used and reused to evaluate different assumptions (such as the mutiple of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).

How to sell your business – Step 3

In our first two blog posts in this series we discussed preparing a list of potential acquirers and a couple of strategies to contact them.  In this post we will discuss milestones and some of the typical documents you may encounter in the process.

The first sale milestone is arriving at a memo of understanding or MOU.  The MOU is a document describing a bilateral or multilateral agreement between parties.  In the sales process it usually indicates the desire to work out the preliminary purchase and sales issues to allow both parties to sign a letter of intent or LOI.

An MOU is often used in cases where parties do not yet want to imply a legal commitment.  In essence it is a more formal alternative to a gentlemen’s agreement.  The MOU process allows you to proceed with several companies at the same time, keeping more options open.
The next step is more formal, the signing of a letter of intent or LOI.  The LOI is a document that outlines the terms and conditions of an agreement between two parties before the agreement is finalized.  Such agreements may be Asset Purchase Agreements, Stock Purchase Agreements, Joint-Venture Agreements etc., basically any agreement which aims at closing a financial deal.
LOIs resemble written contracts, but are usually not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as non-disclosure agreements, a covenant to negotiate in good faith, or a “no-shop” provision promising exclusive rights to negotiate. The purposes of an LOI are to 1) clarify the key points of a complex transaction for the convenience of the parties, 2) declare officially that the parties are currently negotiating, as in a merger, sale or JV, and 3) provide safeguards in case a deal collapses during negotiation.
Some time before the LOI is signed, the selling company should perform their own due diligence on their business with the help of a trusted advisor.  As the business owner, you should know where the potential issues are.  First, you should look to fix as many as possible.  Second, you should disclose the remainder to the potential buyer.  Buyers use due diligence issues to negotiate down the price of the business.  Disclosing them at the LOI level takes that card out of their hand.   Some owners feel that some issues will go undetected.  That, however, seldom happens with a savvy buyer.

The final steps in the process are the negotiations and closing.  There are books written on the negotiation process itself.  Suffice it to say that if the up front work is done well, uncovering the value your buyer perceives, the internal due diligence and negotiating the LOI, then the final negotiations should be much easier.   For more information and insights on selling your business, just complete the form of the right sidebar to download our e*book Exit Planning: The Guide for Business Owners.