Monday 5 October 2015

Transforming commercial focus - Organisational development and training case study

Living Sport was facing the requirement to become much more commercial in its operations - it was having to diversify its funding base and was realigning its resources and capabilities to enable this transformation in preparation for the next financial year.  

Simon was appointed Non-Executive Director/Trustee and Chairman of Finance Committee of Living Sport - a regional sports development charity in September 2013.  As part of this role Simon provided pro bono coaching to the Business Development and Finance Managers to help them meet their day-to-day objectives.  The MD participated in one of Realising Ambition’s workplace simulation events focused on how to create High Performing Teams and Organisations.  This event was delivered by Stephen Pauley, co-Founder of Realising Ambition and Brian Lewis, an Associate.  The MD then asked Realising Ambition to pitch against a training requirement for the charity.  

Realising Ambition put together a 12 month “Academy-style” programme comprising four quarterly workshops covering the 6 person leadership team and individual 1-2-1 coaching sessions in between.  Topics covered included:

  • Behavioural profiles and communication styles (Tetra Maps)
    • Integration with Motivational Maps work that was conducted separately
  • Individual Strengths inventory around which to build effective project structures
  • Relationship building, sales and business development skills
  • Influencing skills, assertiveness and conflict resolution
  • Coaching skills - the GROW model
  • Delegation and management structures
  • Capacity planning, prioritisation, delegation and workflow alignment
  • High Performance Team principles, structure and improvement plan
    • Integration with external Charity audit and quality assurance processes
  • Strategic planning and performance management
  • Presentation skills 
  • Series of organisational initiatives and projects set up and monitored during the programme, e.g.:
    • Radically improved vision, purpose and strategy
    • Business process improvements and benefits tracking
    • Balanced Scorecard with objectives, metrics and targets to be used to track organisational progress against its strategy in management and Board meetings

Outputs for Living Sport included:

  • The team being fully immersed in new management methods having lots of opportunity to practice the techniques in the training environment and personalise it through coaching and application to their jobs alongside the training
  • The organisation being equipped with the basis of its strategic plan and the necessary operationalisation plan and tools to ensure the strategy is executed

Tremendous example of how Realising Ambition’s unique combination of leadership/management development and coaching process and content together with its commercial business results focus can really deliver organisational change through a training intervention.  This is all achieved using Realising Ambition’s action learning approach that allows plenty of opportunity for practice, reflection, feedback and improvement.

What about this whole exit thing then?

The exit conversation is rarely far from an early stage company's Board agenda. When is the right time to start it?  How much should it inform strategy?  Is there a minimum price we are aiming for?  Is that customer or distributer actually a potential exit partner?

The exit conversation is unavoidable but not always voluntary.   One of the familiar transitions an entrepreneurial CEO has to make is when they take on external investment.  All of a sudden they are not just responsible for building their own value but also that of the investors’ money they are spending from that day on.  The freedom and autonomy of being an entrepreneur needs to be tempered by their new responsibility for the nest eggs of their investors’ families and their families too.  While Angels may be told not to invest money they cannot afford to lose - this does not mean entrepreneurs should treat the money as flippantly.

There are some common phrases I hear:  

  • Someone wants to buy me - what do I do now?
  • Not enjoying this anymore - how do I sell up?
  • Can I really hold my head up as a successful entrepreneur if I have not exited?

The answer to the last one is clearly yes - so let’s close that one off now.  If you have created value for customers, created jobs, at least generated a return in dividends (at yield of greater than 5 to 10%) to major stakeholders and still growing after 5 years then clearly you are an exceptional entrepreneur.  If this is all aligned with any investor expectations then even better.

However, are the other entrepreneurs asking the questions in control of their own destiny?  Are they starting partner discussions on the front foot?  Are they likely to be pleased with the outcome when it happens?  Will they get the valuation they think they deserve?  Will they get the right up-front cash payment and limited earn-out/lock-in they would prefer?  Will it free them up to do all the other things they actually want to do with their lives post sale?

Equity generates capital appreciation and income (through dividends) - investors have different preferences but capital appreciation is rarely achieved in any other way other than an exit - trade sale, float, MBO etc.  As soon as there are external investors on board the life-style business option disappears and then the challenge becomes one of aligning the vision of the investors and the ambition and actions of the entrepreneur who still relishes the control that not working for a mainstream employer gives.

I do not advise generating a strategy for the company based on exit considerations, but the strategy needs to be checked against whether it is really going to deliver the exit potential the entrepreneur and shareholders need.  A great business for customers and employees is usually a great business for its shareholders too - if the company is doing something unique for customers that is defensible and scalable, in a market that is sizeable and growing, then it is highly likely someone out there will want to buy it.  

This all means building long term capital value in the company from an early stage - ensuring that any potential acquirer will find it cheaper and easier to buy your company rather than someone else’s or build it themselves.  Here are my initial list top tips to making sure this happens:

  • Focus from the very beginning on what makes you unique and what needs could not be satisfied without you - never lose sight of the vision, purpose, values and strategy regardless of how painful day-to-day cash management activities can be
  • Recruit your key staff with a view in mind about which of them could take over from you and could lead major streams of your business in their own right
  • Ensure your succession plan and structure is in place well ahead of any exit discussions - trying to engage in change at the time you are asking others to pay money for your life’s work is complicated
  • Run the financial budgets and accounts as if you have external conversations going on at all times - what will the margins be for a new owner, avoid adjustments and the potential buyer thinking they will need to invest to achieve the plans: they would then discount valuation
  • Build up a consistent story of why you are doing what you are doing - acquirers rarely buy companies that look like incubators and idea generators rather than execution heroes.  Being adaptable and flexible to changing customer needs is one thing - pivoting everything 6 months is another.  What intellectual property and proprietary methods underpin all these changes - it is the underlying technology and premise that you want people to buy into
  • Demonstrate an erring ability to set up milestones and achieve them from the earliest possible stage
  • Establish a brand identity and awareness that is separate from the people who set up the company or would run it post-sale - the brand is then meaningful in itself and semi-independent from the technology or people that sit behind it

An ever present part of my advice on this subject is about how to build up a successor management team that could be the exit route through an MBO/MBI.  Sharing wealth generated with your key management team members may be painful up-front but it can lay the ground work for them being able to buy you out later as long as it is pitched in this context.

This can avoid a lot of the pain of a full external sale especially in professional service companies that are less scalable than many technology-based organisations.  I am getting increasingly interested in how to apply the acquisition driven route to exit that I implemented as the telecoms consultancy CEO.  Entrepreneurs may have achieved their goals well before their company has got anywhere near achieving its potential - how about finding a strategic investor/financial partner to finance a partial Founder Exit and then inject cash to merge with other related but synergistic entities to build a real powerhouse that is editable at far higher valuations and multiples at a later stage?

This area will be among many of the themes above that I will return to in future 

How much is my sales pipeline really worth?

Sales pipeline analysis is about realism and objectivity – why do so many managers fool themselves into false expectations and get cross when this is pointed out to them.

What possible benefits are there in using rose-tinted glasses for such an important activity – or is it about selective use of the vari-focals to make clear what they want to make clear?  Why avoid something that might be bad news and deprive yourself of the opportunity to improve the situation and achieve great things as a result?

So you may have gathered that I see this frequently and find it very frustrating.  Have you the following - but my situation is special, I am a better sales person, my proposition is more compelling…that may well be but exactly how much of difference does that make: 20% or 100%?  Guess what I think!  If experience breaks the norm then you can build it in – but let’s start with the feasible and most likely.  It is another of those unwritten rules that sales people performance regresses to the mean just like fund manager performance – see Daniel Kahnemann.

Why do I have any credibility at all in talking about this?  When I took over Analysys Consulting in 1998, I took over many fantastic projects but one of them was the disciplined pipeline management and sales forecasting process.  It became fundamental to us as we rode the dotcom wave, helped steer the company into new areas of growth, judge recruitment and prepare it for sale. 

Strangely, it was one of the most difficult areas when we came to merge with our sister company – as a bunch of analysts we “knew” that we had calculated the right answer and just couldn’t understand why the rest of world seemed to find irrational reasons not to use it and continue to use the “gut feel” method that rarely seemed to work.  We went along with it for a while until it became clear it was fiction and injecting falsely high hopes into the planning process.  Not surprisingly , one side continued to grow and we struggled to work out how to grow the other one when it was difficult at any point to really get a grip on the likely sales outturn.  No benefit whatsoever in fooling anyone as to the real prospects – defensiveness and fear of failure can lead people to look at things in ways they think support their own views but then others suffer as a result.

This links back to one of my previous blogs on how entrepreneurs react when they are attempting to attract and then spend investors’ money.  The responsibility to use the rational and realistic sales forecast is then even stronger – using false expectations because they tell a better story leads directly to value destruction.

At Analysys, courtesy of Drs Cleevely and Gray, we simply had a method that took pipeline judgements away from the instinct and political agenda of those involved in the sales cycle – we found it relatively straightforward to work out from the past what proportion of what kind of leads turn into work and what the right value at each part of the pipeline needed to be to hit monthly revenue numbers.  Turns out that this is not hugely different across different companies and across different sectors.  I use it as my default position when getting involved in new companies but nearly always encounter huge resistance – but we have done it this way here, our product is different, we have a better way of closing business, better client relationships etc.  And then sales forecasts slip, there is rarely enough in the pipeline to protect against a loss of some “banker” proposal.  This is despite some very clear parameters included as guidance in CRM systems – the parameters that are so often over-ridden and which also tend to be increasingly over-optimistic as sale closure appears to be getting closer.

One of the key features of the Analysys method was never to rate a bid as higher than 55% likely to convert until the work actually started and you had a clear view that an invoice would be accepted.  Why so pessimistic?  Well, projects can get cancelled for many reasons, they can be renegotiated and most importantly timings slip – the chance of a sold piece of business starting at a certain time is just as temperamental as winning the business in the first place. 

I originally thought that this was a feature of professional services businesses but have since learnt it is just as relevant for product-based businesses too.  I have recently been a bit more flexible in using this framework – I have allowed a 90% category for business that has been contractually confirmed (including start date) even if the first invoice has not been issued or accepted. 

Can anyone re-buff the assertion that the average likelihood of sales in a pipeline is typically 15% to 20% when you look at historic win-rates?  Then why do so many pipelines have an average probability weighting of 30% to 50% - mathematically hard if the highest rating is 55%! 

This is yet another example of where being totally honest and frank with yourself can lead to fantastic results – and where using false assumptions (even unwittingly) can lead to serious problems.

Addendum – Commonly missed questions in the sales process

·      Who will actually make the final decision?
·      Have you met the person who will make the final decision?
·      Has the budget been identified for the purchase?
·      Who is advocating your solution inside the customer organisation?
·      If they were to buy your product, when will they actually pay for it?
·      Are you the preferred and/or only supplier in the process?