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?

Transforming the capability of future leaders - Case Study detail

The Head of Talent Management used to work with Simon at Gemini Consulting and kept in touch over the years mainly through LinkedIn.  He received the SJ Associates “Ambitions” newsletter and showed interest in the whole area of Motivational Maps and career planning.  Simon had a couple of pro bono informal coaching sessions to help him think through career management within his current employment and also with reference to his long term goals and perceptions of strengths and core capabilities.

His job focus changed to Head of Learning and Development and it was in this context that he asked Simon and Realising Ambition to pitch to deliver a UK and Poland based Leadership Development programme for their highest performing middle managers and future leaders.

Background

Our client was a London-based investment banking consultancy founded in 1997. The company focuses on business and IT consultancy and IT service and has some 800 staff internationally, including 660 permanent. Its clients include nine of the world’s 10 leading investment banks. In London, the company has 250 business and IT consultants, with a further 80 in New York, Boston and Toronto. It also has nearshore facilities in Poland, Spain and Costa Rica providing 480 programmers.

Our project took place within the context of a merger process. 

The Project

SJ Associates’ sister training and development company, Realising Ambition, was asked to design and deliver a Development programme for 14 of the company’s  top performers and future leaders in the UK and Poland. The programme consisted of various modules spread over a nine month period. Additionally, all participants received one to one coaching in between group sessions. This helped to individualise the learning and create Personal Development Plans. It also ensured there was an effective follow up and accountability mechanism that kept the learning live and focused on day to day practical issues.

Following a whole group orientation and introductory session, modules were designed on the themes of Team Development and Management and People Management and Engagement

Topics covered in the various modules included:-

• Developing a greater understanding of own and other’s behavioural and communication preferences  (Tetra Map)
• Coaching skills
• Meeting management
• Influencing and assertiveness skills
• Presenting with impact and confidence
• Creating high performing teams
• Holding challenging conversations
• Conflict resolution
• Developing relationship management and customer service skills

As a result of the development work the participants are better equipped to build and maintain more constructive relationships with colleagues and customers.  They also learned leadership skills which they have applied in a project management context. 

Programme Evaluation 

Post programme the client conducted a comprehensive evaluation process with all participants. They were asked to rate various components on a scale of 0(poor) to 4(excellent).

The questions and ratings were as follows:-

Question	Rating
How would you rate the programme/content in terms of helping your personal development?	3.30
How much of what you learned on the programme have you been able to apply or use on your current project?	2.80
How effective was the format of the programme e.g. group sessions, 1-2-1 sessions, practical content compared to theory?	3.40
How knowledgeable were the trainers about the subject matter?	3.70
How well did the trainers present the material and answer your questions?	3.60
How would you rate the trainers overall?	3.50

They were also asked to comment on what they liked most about the programme?

• 1-2-1 sessions were mentioned most often 
• “Building up well described fundamentals of coaching followed by well organised practical exercises”
• “The best bit about the programme for me is that it genuinely has boosted my confidence in myself as a project manager/consultant which is great, and I think that is a product of Stephen and Simon rather than any particular aspect or content of the programme. “
• The 'how to be a coach' sessions they gave were very interesting and was one of the best soft skills development type exercises I've done”

Suggested improvements were:-

• Longer timeframe for the programme with more 1-2-1 sessions
• Off- site venues rather than company facilities

Other Participant feedback:-

• It has been extremely worthwhile, it has helped with confidence  and  enabled me to deliver better presentations
• There was a good balance between theory and practical stuff and I liked how it has been individualised
• Extremely interesting and worthwhile and has helped with meeting preparation. The high performance team framework enabled me to identify patterns and characteristics in teams that I am involved with
• I use the GROW model for planning my approach to meetings and I feel better equipped to have tough conversations
• I am more self-confident as a result of the programme – it has helped me to know that of course I can do it.
• The way it was presented was excellent. I found Tetra Map really useful and use it. I spot the different types of characters at meetings and adapt my approach accordingly (when necessary).

Client testimonial

“Realising Ambition worked with us to develop and deliver leadership training for a small group of our top performers. Having been through our TOP Talent programme previously, we were looking to take a dozen employees from across Europe and give them personalised coaching and training to help them develop into future leaders of the company. This was the first time we had attempted this, so it was essential that we found a partner who could work flexibly with us, adapting to our specific corporate needs but also adapting to the diverse range of individuals involved (IT developers to business analysts and project managers, junior to more senior employees, as well as different nationalities and cultures). Realising Ambition was the perfect partner in this case – they were able to tailor the programme to deliver exactly the right mix of group learning, individual coaching, formal training and informal knowledge sharing that we needed, and the participants responded very well to the programme – many commented that it was the best training they had ever received. Whilst the content, structure and delivery of the programme were all first class, it was the knowledge, experience and empathy of the coaches delivering the programme that made all the difference – they have been there, done it and therefore can coach others based on deep first-hand experience in a way that both challenges and motivates the participants”

Head of Talent Management and Operations.

Stephen Pauley, Director, Realising Ambition (UK) Limited, May 2015.

To discuss your team’s requirements and the ways we can support you and your team to realise your potential, please contact Stephen Pauley Stephen@realisingambition.com) or Simon Jones (Simon@realisingambition.com). 

Transforming capability of future leaders

The Head of Talent Management used to work with Simon at Gemini Consulting and kept in touch over the years mainly through LinkedIn.  He received the SJ Associates “Ambitions” newsletter and showed interest in the whole area of Motivational Maps and career planning.  Simon had a couple of pro bono informal coaching sessions to help him think through career management within his current employment and also with reference to his long term goals and perceptions of strengths and core capabilities.

He had brokered an introduction between one of Simon’s companies focused on HR analytics but nothing happened there.  His job focus then changed to Head of Learning and Development and it was in this context that he asked Simon and Realising Ambition to pitch to deliver a UK and Poland based Leadership Development programme for their highest performing middle managers and future leaders.

Reflections - The Application of Agility

I was recently in Poland, taking a financial IT consultancy’s high potential group through the hoops of Realising Ambition’s action-learning Leadership Academy programme when the concept of Agile software development came up.  I have always been intrigued to understand more about what Agile, Scrum, Sprinting etc all meant in practice - seemed liked new concepts introduced since my COBOL programming days back at a time I don’t wish to mention.

Without going off on too much of a tangent here, what was particularly interesting was the concept of the weekly, or sometimes daily, 15 minute stand up meeting around which a lot of this process revolves.  The idea is that each team member says what they have achieved since the last meeting (preferably compared to what they said they would achieve at the last meeting), what they intend to achieve in the next period, how they will achieve those outputs and what may get in the way of doing that.  It is left to one-to-one conversations afterwards to work through how to remove any obstacles.  The team we were training loved these meetings, suffered badly when they did not happen and immediately saw how this fitted with the Realising Ambition training philosophy of accountability and results orientation.

So what you may be asking?  The "so what" for me is that it is a process that we used at the telecoms consultancy I led on a weekly basis on operations management and sales pipeline review calls amongst our partner group.  We had realised quite early on that there was some value in focusing on what had happened and making us all feel bad about missed targets or good about beating others but we all pretty much knew that without needing a call on the subject with our peers.  We focused much more on forecasting what we thought we could achieve and identifying where each of us could help others push forward to turn those forecasts into reality.  We called it the "Last Week, This Week, Next Week" routine and we provided lots of underpinning metrics to help the discussions along.  Whenever issues cropped up we knew we had a rapid and flexible way of solving them or finding new opportunities and ways of succeeding.

I didn’t know this was called Agile, but just before the Poland training trip I had started to introduce this concept into my coaching sessions with a couple of key clients.  Their issues were around how to prioritise competing demands on their time, ensure strategic initiatives got delivered and they found time to simultaneously deliver client work and develop new business.  Once my clients had identified their 6 months objectives, translated those back into 3 month targets it was a small step to realise that the way to embed them in the day-to-day bustle of client calls, emails and general mayhem was to keep the "Last Week, This Week, Next Week” structure in mind and for my clients to hold themselves accountable each week for assessing how well they were doing.  

Not only did they end up dropping some work that turned out not to fit with their objectives, delegate other responsibilities (upward and downward), bring in staff to take workload off them but they also increased their attention on areas of high impact but previously ignored areas, e.g., getting out and networking, recognising they were in control of deliverables and no-one else was creating obstacles.  Greater self-awareness married to a firmer accountability structure led to clarity and a much stronger completer-finisher mentality.  Ultimately, that breeds confidence which in turn breeds the ability to achieve outstanding results where before excuses stood in the way.

What it also allowed was easy identification of successes and reasons to celebrate. Fun and satisfaction leads to increased productivity and effectiveness too.  

Not everyone responds well to the weekly drum-beat described above, but please look at ways such a structure could be applied to your own situation.  So many performance issues and perceptions of drifting boil down to time management and prioritisation challenges - what framework could you use to break down any barriers to personal effectiveness?  If it is not this, what is your alternative planning philosophy?  How do you avoid never quite fully reaching the targets you have set yourself and your team?  How do you ensure that strategy actually gets implemented as planned and not 6 months later if at all?  What common language do you use to ensure effective cross-team collaboration?

I came to rely on this discipline in my multi-faceted pluralist existence - even got to the point of pretending my wife was my boss and sending her reports on how well I was doing.  No comments on the boss thing please but it was clear she never read or had any interest in these reports but at least it got me into the routine and my professional life was transformed as a result.  I don’t do it religiously now, but it was the tool that enabled a transformation in my working style and portfolio management processes - it is now there in the subconscious supporting me give all my various clients and companies the quality of service they deserve.  I hope!