buying an existing business

So You Want to Buy a Business? Turn Buy-Side Challenges to Your Advantage with Our Strategies

Buying an existing business is one of the best ways to break into a new market, acquire valuable copyrights or patents, or leverage your expertise to steer a stagnating business in the right direction. While acquiring a business typically requires more funds upfront, the risks tend to be less than starting your own business—as long as you buy smart, that is.

We teamed up with Richard Phillips of Crossroads Capital to create a webinar guiding the smaller financial buyer eying the middle market. We’ve included the link to the full 60-minute webinar at the end of this article. Here we specifically address two key insights about buying an existing business: buy-side challenges to consider and how to develop a communications approach that turns those challenges to your advantage. So, let’s get to it!

Buy-Side Challenges Facing Smaller Financial Buyers

Because the mid-market M&A environment is highly competitive, if you are a smaller financial buyer looking at buying an existing business, you are unlikely to be able to compete on price alone. Bigger, strategic buyers will be in a position to offer better deal terms and be able to outbid you in most cases. This means you need to get clear about who you are and what you offer AND you need to be creative in coming up with a strong target list, developing your relationships, and negotiating deals.

First, keep in mind that opportunities to buy are not limited to brokers’ lists or small business auctions. In fact, investment bankers, who advise smaller commercial buyers recommend looking closely at not-for-sale companies. While it is tougher to find business owners who are willing to sell here, when you do find one, it can be easier to close a deal.

One key advantage you have over bigger buyers is flexibility, so use it. Your flexibility may allow you to shape a deal that’s more attractive to the seller. Consider that small business owners willing to sell often have concerns beyond price. An owner who has built her business from the ground up over the past 40 years may prefer an agreement that includes provisions for her continued involvement as a consultant or a guarantee that loyal employees will be protected. Bigger buyers often can’t or won’t make such promises.

Because many owners of middle market businesses care as much (or more) about non-financial concerns as they do about the money, it’s important to think about the transaction from the seller’s perspective. This may be challenging since, as a buyer, you will be primarily focused on the business valuation and financials. But this broader focus will pay dividends in the long run.

As you begin discussions, keep the following likely differences in mind:

  • Personal: Business owners are often at a different stage in life than buyers and have different motivations. This makes sense if you think about when an owner might be in a position to sell, e.g., when she’s ready to retire. Also, according to recent reports, America’s business owners tend to be older (50% over 55). There may be important generational differences between you and the seller.
  • Cultural: While you may be a numbers person, keep in mind that your seller is likely not tracking KPI’s or sweating over spreadsheets. Most business owners in this environment are independent-minded and focused on qualitative measures. Many entrepreneurs build their businesses by making smart short-term decisions and keeping their noses to the grindstone, rather than thinking about their exit strategy. Sweat equity may be all they know.
  • Situational: Above all else, remember that while this may be one deal among many for you, this business owner will likely sell only once. Be respectful of this mindset difference and realize that if the seller expresses “sellers’ remorse,” resistance, or reluctance, he’s probably not trying to be a jerk—he’s trying to get things right. It can also help to keep in mind that you’re both doing something you’ve never done before. You’ve never bought this business and he’s never sold this business.

Overall, if you approach discussions with the owner of a not-for-sale business with an attitude of respect and a willingness to be flexible on the terms of a deal, you both stand to gain. Now let’s get specific about what your approach should look like.

Key Ingredients in Your Communications Approach

Keeping the above challenges in mind, it’s clear that if you approach a potential seller with complicated spreadsheets and graphs, you’re likely to be met with polite stares, if not a quick invitation to show yourself out. This is not to say the numbers aren’t important to a seller, but buying an existing business is all about how you present the rationale behind the numbers, not to mention yourself and your qualifications as a buyer.

Ask yourself: What’s my differentiator?

Although you want to buy this business, your approach should come from more of a seller’s mindset. Your goal should be to articulate your value and sell your organization to the owner. Above all, gain rapport by listening to the seller, figuring out what she needs most to be comfortable selling, and then being willing to adapt to those needs. The bottom line is you have to build credibility with the business owner or you don’t have a deal. Period.

Key ingredients in your winning pitch:

1. Articulate your organization’s value. Be ready to talk about your mission and how buying an existing business fits into the broader vision you have for your organization. Bonus points for connecting this with the seller’s values.

2. Come up with a seller-focused message. Paint a clear picture that explains why this particular business, what your aspirations are for the future, and how you are uniquely positioned to usher this business into that bright future. This message needs to be authentic. If you simply say what you think the seller wants to hear, without buying in yourself, the owner will see right through you.

3. Emphasize how you stand apart from other potential buyers. It’s not unheard of in a competitive environment, such as the mid-market, for there to be 10 other buyers offering all-cash deals. It’s imperative for you to talk about how you and your team could be an asset to the company you want to buy. Talk about the unique strengths can bring that help them achieve their vision for the business.

Again, go beyond the numbers and consider the owner’s mindset. She is considering turning over her company, which is more like her baby, to a complete stranger. You would have reservations too. Help her see past those reservations through your message.

Remember: This is Personal

Finally, as you consider how to set yourself apart from other buyers, know that making the personal connection and gaining the seller’s trust can absolutely determine who wins the sale in the end. You’ve probably heard stories about home buyers in competitive markets writing heartfelt, handwritten notes to sellers and getting the house because of the letter. The same strategy can work in buying an existing business.

But before you pull out the stationary, it’s crucial to locate the point of overlapping values early on and expand on those points of relevance throughout the process. Describe your respect for the seller’s legacy and her motivations, talk about your investment plan and growth strategies, and discuss your philosophy on performance-aligned compensation. In other words, appeal to the owner’s beliefs about what it takes to successfully run this business.

There’s no doubt smaller buyers face several challenges in buying an existing business. But the right communications approach can turn those challenges into a winning strategy. If you remain open to opportunities to show that your aspirations align with the owner’s aspirations and that you can be creative with your deal structure, you can succeed in the mid-market M&A environment.

Once you’ve decided buying an existing business is your next move, it’s time to find the right advisors to guide you through the 16-18 month process. At Audacia Strategies, we’re here to support you before, during, and after your acquisition. We live for strategy!

For additional insights on this hot topic, follow this link to hear Katy and Richard’s full webinar: Succeeding as a Small Financial Buyer in Mid-Market M&A.

Photo credit: Wavebreak Media Ltd

influencing business valuation

Could Your Business Be the Next Apple or Amazon? 5 Key Factors Influencing Business Valuation (Part 2 in our series on Business Valuation)

This is the second part of our series on business valuation. Before you dive in here on influencing business valuation, make sure to check out part one where we dig deep into types of valuation.

In our previous post, we discussed some of the complications involved in determining the value of publicly traded and privately owned businesses. And we want to emphasize that while from the outside it can seem like big corporations are dealing in Monopoly money—business valuation is not (completely) based on concrete, objective measures—strategic investors and private equity buyers do follow some standard assessment practices.

Still, business valuation remains a contentious issue and as a result, many potential sellers approach negotiations with assumptions, rather than knowledge about specific value drivers supporting a realistic assessment of their business’s worth. Since assuming is always inferior to knowing, especially during the negotiation process, it’s worth considering internal and external factors influencing business valuation.

Whether you’re thinking about selling your business in the near future, interested in keeping value drivers on your radar as you grow your business, or looking to get into the investment game yourself, there are key factors influencing business valuation to keep in mind. In addition, CEO Katy Herr will be speaking with our friends at Quantive to get their expert perspective on this timely topic. Check back for a link to the podcast where Katy and the Quantive team will dig deeper into influencing business valuation and transferring value in M&A. In the meantime, here’s a primer.

A Quick Recap

Before we look at the specifics influencing business valuation, let’s remember why this is an important question to ask. Recall that there are a couple ways to assess the value of a publicly traded company:

1. Market Capitalization (cost of a company in “real money”):

  • Market cap = stock price x number of outstanding shares

Following Apple’s ascent into 13-digit territory last month, Amazon’s total market value surpassed $1 trillion last week. Both of these valuations are based on the simple formula above.

2. Enterprise Value (cost to acquire a company):

  • Enterprise value = a corporation’s market cap + preferred stock + outstanding debt – cash (and cash equivalents) found on the balance sheet

This is the formula a buyer might use to determine what would be a fair offer to acquire a publicly traded company.

Now, investors don’t use these formulas when looking at the opportunity or degree of risk involved in acquiring privately held companies simply because they don’t usually have access to this information. Private companies aren’t required to report earnings, stock or share prices, outstanding debt, or cash in the bank. However, as a business owner, you do have access to this information and you could provide it to interested investors or buyers. In fact, strategically releasing this information will likely give you a leg up on influencing business valuation.

What’s really important to understand for our purposes is both types of business valuation, but especially market cap, rely on expectations. So let’s talk about factors influencing business valuation.

Buyers look at the following factors when deciding which valuation multiple to apply to their assessment of your business’s ability to generate income and cash flow. Here is what you can do to put yourself in the best possible bargaining position:

1. Maintain Clean Records

If you aren’t doing this for your own peace of mind and other business benefits, it’s crucial for you to get your books and records in order well (years, ideally) before you start looking for investors or buyers. At a minimum, you will want to keep personal and business expenses separate. Having professionally managed books and a solid financial audit is a smart investment if you are seriously hoping to sell one day. This will also help you understand where you are today so you can target your growth goals and mitigate business risks influencing business valuation. So, do your homework here.

Keeping clean records is the first step toward running a profitable business. But records means more than financials. Make sure all important documentation is well-organized and would make sense to interested parties outside of your inner circle.

Important documentation includes:

  • Financials (balance sheets, expenses, tax returns, credit card statements, bank statements)
  • Audits, regulations, and licensing records
  • Recent legal due diligence reviews
  • Written systems and processes, including employee handbooks and manuals
  • Key employee agreements and noncompetes
  • Customer records
  • Written and assignable customer agreements
  • Written contingency plans for emergencies and other potential disruptions to cash flow
  • Key equipment maintenance records

2. Highlight Positive Trends

Investors want to know when they can hope to see a return on their investment, of course. This means showing a projection of positive, predictable profits is ideal. But if your business is new, this might not be a realistic benchmark.

Typically, analysts and investors will look at the most recent 3-5 years of past performance and 2-3 years of projections in determining value. Be sure to point to factors within your control, such as personnel management and smart cost-cutting maneuvers, as well as external factors, such as industry dips and seasonal declines, to tell a complete story.

It’s also crucial to point out other positive trends influencing business valuation that make your business attractive:

  • Revenue growth rate
  • Consistent gross margins trending upward
  • Higher than average industry operating margins
  • History of achieving financial projections
  • Strong, sustainable, predictable cash flow
  • Consistent history of profitability
  • Solid pipeline of new business and demonstrated ability to convert

3. Be Open to Change

One of the big external factors to consider is how the business will respond to inevitable market adjustments and changes in the industry. With technology and automation bringing about rapid changes in most industries, businesses that show an ability to evolve are most likely to maximize profits and sustain additional growth while keeping operational expenses low.

For companies involved in the production of a product, evaluating your strengths and weaknesses is crucial. Can you increase efficiency, product quality, profitability, or customer satisfaction by outsourcing certain aspects of your supply chain? Should you seek out strategic partners in particular areas?

4. Make the Business Less Reliant on Key Personnel

What would happen if the CEO decided to retire, seek out another career opportunity, or take an extended vacation? If your answer is that the company would not skip a beat, then you are on the right track. Companies that rely on owners who spend a lot of time working “in” the business are susceptible to lower valuations. By contrast, those who can set up reliable processes and trusted management to serve clients can walk away leaving a new individual to run the business.

Bob Moskal at Quantive shared this example:

We worked with a facilities maintenance company to recommend and implement a host of improvements to make their business transferable. For example, we recommended they digitize their record keeping, make their financials useful for running the business not just for tax returns, and transition customer accounts to account managers so that a potential new owner could see that the company could run with the same level of success without the departing owner. Previously, this business would have been heavily discounted or not sold at all. It’s now positioned for growth and a more attractive acquisition target.  

Additionally, the following factors make a business easier for a buyer to take over and manage successfully:

  • A strong, recognizable brand identity
  • For product-centric businesses: a clear supply chain; equipment upgrades to modern, productive equipment; systems in place for identifying and implementing new technology
  • For service-centric businesses: system protocols that have been tested; an established, clear succession chain; well-documented job descriptions and processes for sharing institutional knowledge

5. Be Able to Show Large Market Potential

In one sense, how a business has performed in the past matters less to investors than the potential for future growth. Past performance is only as good as what it tells us about future projections. Many buyers focus on turning around businesses in industries where they have been successful in the past or businesses where they have key contacts who could help increase future profitability.

Because so much depends upon the expectations of individual investors, it pays to focus on factors that will likely influence the market potential:

  • Multiple, strong sales distribution channels
  • Multiple revenue streams
  • A strong industry market share
  • A written and up-to-date business plan
  • Proprietary products or technology

Because all of the above five factors influencing business valuation depend on expectations, the best you can do as a seller is lay your cards on the table in a way that puts your company in the best light. This means putting yourself in the shoes of your investors and considering carefully what would make this offer most attractive.

Finally, if you’re really hoping to get top dollar for your business when you are ready to sell, experts say it’s all about doing the pre-sale prep. Again, according to Bob Moskal, business owners will want to start with due diligence a couple years ahead of time, so they have plenty of time to take steps to correct any “skeletons in the closet” ahead of negotiating a sale.

Also, Bob recommends knowing what your company is worth before starting the process, “we’ve often seen a seller shy away when he starts actual retirement planning late in the game and realizes the value falls short. A good financial planner can help here.” You can hear more of Katy’s conversation with Bob about influencing business valuation when they sit down to record a podcast later this month. We’ll add the link when it’s available. Stay tuned!

At Audacia Strategies, we specialize in putting together communications strategies that helps our clients meet their goals. We’ll be the voice of reason as you figure out how to highlight the key value drivers and tell the story of your current (and future!) success. Our team is all about managing expectations. Contact us to schedule a consultation.

Photo credit: rawpixel

business valuation

Are Apple and Tesla Using Monopoly Money?—Business Value, Valuation Myths, and Your Business (Part 1 in our series on Business Valuation)

This is the first part of our series on business valuation. Check out part two where we dig into what influences these different types of valuation.

Business valuation is making headlines these days. With the announcement that Apple is the first publicly traded company to surpass the trillion dollar mark and Elon Musk making Twitter waves about taking Tesla private putting its value at $72 billion, it can feel like some of the big dogs get to play with Monopoly money.

Adding to this perception that business valuation isn’t always (completely) based in reality (hint: there is a big difference between what a company’s worth in “real money” vs. what it could be worth in an acquisition), consider what’s happening in the Venture Capital (VC) ecosystem. VC investors love to reward growth metrics with higher valuations. So it’s common for startups to shop VC firms looking for the best price. This practice has some experts worried that the VC industry is the next bubble.

However, before we throw our hands up, let’s look at what we know about types of business valuation and what these mean for successful non-unicorns and their investors.

Public vs. Private Company Valuation

One of these things is not like the other.

The first thing to understand about business valuation is that we can’t easily compare the values of publicly and privately held companies. Determining the market value of a company that trades on a stock exchange (e.g., Apple, Tesla, Facebook) is fairly straightforward (though we’ll see below that this method doesn’t take into account all types of value investors might want to consider).

business valuationHowever, for private companies, the process is not as straightforward or transparent. This is because unlike public companies that must adhere to the SEC accounting and reporting standards, private companies do not report their financials publicly and since they aren’t listed on the stock exchange, it’s more difficult to determine a value for a private company.

Public company valuation: generally in the press you see market capitalization (AKA market cap, in slang) used as a valuation description (see: Apple, Tesla).

  • Market cap = stock price x number of outstanding shares
  • Example: Apple shares outstanding: 4,829,926,000 x $219.01 (closing price on 8/27/18) = $1.06T

This is pretty simple, but keep in mind that this doesn’t necessarily take into account the full range of measures used to assess the potential purchase price (aka value or market value or valuation) of a business. One of the most commonly used valuation metrics for a public company is enterprise value.

  • Enterprise value = a corporation’s market cap (see above) plus preferred stock plus outstanding debt minus cash and cash equivalents found on the balance sheet

So, let’s say that you wanted to buy Apple. The enterprise value is the amount it would cost you to buy every single share of a company’s common and preferred stock, plus take over their outstanding debt. You would subtract the cash balance because once you have acquired complete ownership of the company, the cash is yours.

  • Example: Apple’s Enterprise Value

Apple’s market cap: $1.06T + outstanding debt: $114.6B – cash and cash equivalents: $70.97B = 1.1T

Okay, so how do we determine the value of a private company. Here there are several different approaches.

Headline valuation: private company valuation metric generally based on the price paid per share at the latest preferred stock round (i.e., investment round) multiplied by the company’s fully diluted shares (see: Slack).

  • “Fully diluted shares” = Common Shares outstanding + Preferred Shares outstanding + Options outstanding + Warrants outstanding + Restricted Shares (RSUs) + Option Pool (sometimes)

See. It’s complicated. And, also a bit of a black box for the average investor. It infers that all shares were acquired at the same price as the latest round, which isn’t typically the case.

Generally, this type of valuation is used because it’s impressive on paper and in the paper (or on the screen). Keep in mind that this basic formula, while it may seem complicated, avoids a lot of the technicalities of private company valuation (but if you’re interested Scott Kupor of Andreessen Horowitz did a great post on VC valuation here).

Although private companies are not usually accessible to the average investor, there are times when private firms need to raise capital and, as a result, need to sell part ownership in the company. For example, private companies might offer employees the opportunity to purchase stock in the company or seek capital from private equity firms.

In these cases, investors can assess business valuation using another common approach:

Comparable company analysis (CCA): a method of business valuation that involves researching publicly traded companies that most closely resemble the private firm under consideration. Such analysis includes companies in the same industry (ideally a direct competitor) and of similar size, age, and growth rate.

Once an industry group of comparable companies has been established, averages of their valuations will be calculated to establish an estimate for the private company’s value. Also, if the target firm operates in an industry that has seen recent acquisitions, corporate mergers, or IPOs, investors can use the financial information from those transactions to calculate a valuation.

Discounted cash flow (DCF) valuation: similar to the above method, this approach involves researching peer publicly traded companies and estimating an appropriate capital structure to apply to the target firm. From here, by discounting the target’s estimated cash flow, investors can establish a fair value for the private firm. A premium may also be added to the business valuation to compensate investors for taking a chance with the private investment.

Misconceptions About a Company’s Worth

So, what’s your company “worth?” If you’re not running a billion or trillion dollar company, you may be wondering where to start in figuring out your company’s valuation. We discussed the basics of business valuation in a previous blog article, which will give you some answers.

And, of course, you may now be wondering whether to take your company public. Or perhaps you’re thinking about raising money to fund your business. You can find out more in Audacia’s IPO Roadmap series (Part One is here).

Now that you know the basics, let’s bust a few common myths:

Business Valuation Myth #1: Valuation is a search for “objective truth.”

This may be obvious already, but all valuations have some bias built-in. Yes, investors will pick and choose the model or approach they want to use. So if you want to put your company in the best light when raising capital, it’s important to understand your target investors so you can tailor your pitch.

Business Valuation Myth #2: A good valuation provides a precise estimate of value.

In some sense, investors are not that interested in precise value. Think about it. What does the value of a company today tell you? This is a measure of what the company has done in the past. But investors are really interested in what the company will do in the future. So, the current value need not be precise to determine whether the business is a smart investment.

In fact, while this is somewhat dependent on industry, it’s arguable that the ROI is greatest when the business valuation is least precise. This could be one of the lessons learned from analyzing the VC industry in Silicon Valley.

Look at Uber, for instance, the world’s most valuable VC-backed company, with an estimated valuation of $62 billion. It’s burning through cash, losing between $500 million and $1.5 billion per quarter on a run-rate basis since early 2017. Yet the company still raised a $1.25 billion Series G led by SoftBank earlier this year, according to the PitchBook Platform.

Business Valuation Myth #3: The more quantitative the model, the better the valuation.

There are a few different schools of thought here, but often the more numbers contained in the model, the more questions investors will have. The best valuation is the one that makes sense and is clear enough to be pressure tested by investors. So beware of overly complex quantitative models and numbers that need a lot of explaining.

As you can see, business valuation for private companies is full of assumptions, educated guesses, and projections based on industry averages. With the lack of transparency, it’s often difficult for investors and analysts to place a reliable value on privately-held companies. However, this is really not much different from other aspects of business. Whether you’re a business owner considering how to raise capital or an investor looking to take a chance by getting in on the ground floor of the next big dog, business is all about taking calculated risks.

At Audacia Strategies, we love to help companies in all stages. You choose the next calculated risk and we’ll be there to support you in making bold moves confidently. Business valuation is not for the faint of heart. Get the right team on your side!

Photo credit: pressmaster / 123RF Stock Photo

business best practices

Scale and Transform Your Firm: 4 Business Best Practices that Really Work

Audacia Strategies doesn’t just help other companies scale and transform. We are also scaling and transforming our business. (Gotta live up to our name, right? Be bold, be daring, be audacious!) When it comes to business best practices, we believe in continuous adaptation as a necessity—not something to fear.

What this means for clients is that we approach each project with a focus group mentality. We aren’t afraid to experiment. In our philosophy, that we haven’t yet worked out the perfect pitch deck is not a good reason to sit quietly on the sidelines. We do our research, of course, but we also recognize that significant insights can be gained by stepping out of our comfort zones.

business best practicesI’ve been thinking about successful business best practices that we use with our clients and that we’re applying at Audacia Strategies as well. Over time, I’ve identified a few tactics that help businesses successfully scale and transform.

Start with the Goal in Mind

“If you aim at nothing, you’ll hit it every time.” ﹣Zig Ziglar

Shoot for the moon. Even if you miss, you’ll land among the stars.” Norman Vincent Peale

These quotes might belong on one of those motivational posters we all love to hate, but that doesn’t mean there is no truth to them. Often when leaders or teams are feeling lost on a project it’s because they have lost track of their goal. So start with a goal in mind and refer back to it often.

Ask yourself and key players: Where do we want to be?

For Audacia, this means living up to our core values and thinking big. One value that we hold especially close is: Bold Actions Get Bold Results. But taking bold actions and getting bold results doesn’t have to mean selling out. Too often, firms treat big moves as a zero-sum game. They see transformation as synonymous with volatility.

True, there was a time when business best practices directed managers and leaders to seek out stability as a primary tactical goal. Now, with technology and automation bringing down the cost of starting a business considerably, leaders at large corporations must learn to adapt. They need to ask themselves where they want to be and figure out how to get there without disrupting what is working well. To be successful here, anchoring themselves in their core values is essential.

Breakdown the Walls Surrounding Your Goal

Ask yourself and key players: What do we need to achieve our goal?

When we miss our business goals it’s because we haven’t figured out (yet!) how to circumvent an obstacle. This is one reason we spend time in the beginning working with our clients to do a full analysis of what it will take to hit their big goals. It might feel like overkill in the beginning, but it’s better to identify potential problems and work solutions into the plan from the start.

Besides, what’s the worst that could happen? The potential problems don’t actually arise and your project finishes ahead of schedule.

In strategizing with clients and other business partners, I welcome opportunities to consider where we might face gaps in talent, technology, or process. I don’t shy away from looking for these gaps because I trust that we can come up with creative solutions. So, bring on the Murder Board!

Scaling can happen in different ways, for example. You might not have the resources to bring in the big shot consultancy firm, but perhaps you could hire a freelance consultant to assist your startup on a project basis.

Sometimes by thinking differently about employee engagement or adjusting internal processes you can find new ways to shift time away from administrative and toward strategic tasks. Figuring out how to get more hands on revenue-generating tasks is a perfectly acceptable way to scale.

Prepare for Talent Gaps

One challenge rapidly scaling companies face is a talent gap. You hustle and hustle working your sales funnel for months, then suddenly you’re inundated with work. It could be more work than your current team can handle or it could be work that calls for a skill-set no one on your team currently has.

Ask yourself and key players: What do we need today vs. tomorrow?

If you can anticipate the talent you’ll need for when you meet your goals, you can hire talent beyond the current need and avoid gaps that hurt the bottomline. Great people are hard to find and in a lot of industries they’re even harder to keep. Bear in mind that while you can train for business skills, you can’t train for passion or engagement.

Whenever you can, hire the best. Look to hire those with diverse thought, processes, and backgrounds. Studies show that diverse workforces are more innovative. Under strong leadership, collaborative teams that value constructive criticism as much as uplifting praise will bust through any challenge you put in front of them.

Best business practices for hiring:

  • Don’t be afraid to get creative: Do you really need to go through a lengthy hiring process to find a full-time employee or can a part-time employee or contractor fill the gap? Could you outsource any part of the project?
  • Don’t forget about onboarding: I’m working on this one for Audacia. How do we bring new team members up to speed quickly? How do I introduce contractors who are geographically dispersed? And how do I help them come together on the various projects they’re each responsible for?
  • Do document key policies and processes: Start doing this as soon as possible. Make sure these align with core values and beliefs about how to engage with clients and partners. Bonus: Looking at key policies and processes forces you to be very intentional. You will be deeply aware of critical interactions and intersections within your business as well as the roles and responsibilities required for success.
  • Do spend time thinking about company culture: Build it and reinforce it every day in every interaction and with every hire, client, and partnership.

Bring Partnerships in Alignment with Strategy

A list of business best practices wouldn’t be complete without discussing how strategy and partnerships inform one another. We are better when we cooperate with peers. Of course, you don’t want to give away your secret sauce, but be confident enough in your product or service to share when it’s mutually beneficial.

Ask yourself and key players: Are there opportunities for co-marketing, surge capacity alliances, filling in vertical vs. horizontal gaps in explicit capability and experience?

When you align partnerships with business best practices strategy, you will be more likely to spot 1 + 1 = 3 partnerships. I’m talking about business partnerships that go way beyond basic synergy. It all starts with knowing your business strategy and focusing on building the right business relationships.

These business best practices are really the tip of the iceberg. There’s so much more. If your firm is ready to take bold actions with a team that gets bold results, let’s talk!

Photo credit: pressmaster / 123RF Stock Photo

managing through change

Top 5 Tips for Managing Through Change Or What I Learned While Attempting to Surf

There was a time in the not-so-distant past when executives had a simple goal for their organizations: stability. But market transparency, instantaneous communications, labor mobility, and global capital flows have swept this comfortable scenario out to sea. In most industries and in almost all companies—from giants to micro-enterprises—heightened competition from new markets have forced management to concentrate on something they happily avoided in the past: change.

Companies today need to figure out how they can capitalize on uncertainty. Success in this era means managing through change. A solid, static plan just won’t cut it. So rather than trying to plan for the inevitable and manage the change, leaders should turn their attention to managing through change.

What does managing through change look like?

Good question. I was recently thinking about this idea while on vacation—as one does. While it’s tough to come up with a one-size-fits-all methodology that fits every organization, perhaps a metaphor is a useful place to start.

Surfing and Change

My husband is a surfer. While he doesn’t get to surf as much as he’d like in D.C., we often spend vacations on the water. He surfs. I attempt to surf and spend a lot of time watching surfers and thinking about business metaphors.

On a recent trip, while I was bobbing in the ocean waiting for a wave (okay, more honestly, I was trying to catch my breath after falling and paddling back out for the hundredth time), I got to thinking about how surfing is like managing through change.

The best surfers are masters at riding the big waves. They know better than to try to manage the waves (I’m not even sure what that would look like). They don’t spend a lot of time hoping they’ll be able to stand up or planning to use the very best technique to balance on the board. They feel the flow of the ocean way more than they manage or hope or plan.

In broad terms, this is what it’s like to manage through change. Instead of bracing for the bump, skilled leaders accept that rough waters are coming, learn to embrace the change, and engage their entire organizations.

managing through change

Now let’s try to move past mere metaphor, shall we? Rather than offering a single methodology here, what follows is a “Top 5” list of best practices and guiding principles that can be adapted to fit a variety of situations calling for managing through the change.

1. Watch the sets come in.

In surf lingo, “set waves” refers to a group of larger waves. There’s a rhythm to the ocean on any given day or time of day. As you keep an eye on the horizon and watch these sets coming through, you start to get a feel for the rhythm and begin to prepare to catch a ride.

There’s also a rhythm to markets and if you watch the trends, you will get a feel for it. Managing through change means anticipating market trends and developing flexible strategies to prepare your team for what’s coming. In a highly competitive environment, that means going deeper than your competitors. Is there an untapped resource, you’ve had your eye on for some time? Perhaps it’s time to bring in that consultant or find another way to infuse fresh ideas.

In addition to being prepared for market trends, set your expectations. There are times when pulling back and being a bit more conservative is the right move. But this can be a hard pill to swallow, especially for highly competitive leaders and teams. So set the expectation from the outset: choose a date (or other benchmark) by which time to make a decision. Until then, maintain awareness, anticipate what you can, and prepare.

2. Be in position to catch that wave.

Sometimes the waves in business and on the ocean roll in more slowly than you would like. The “hurry up and wait” cycle can get old. So, make sure you are taking advantage of the waiting periods to understand where you are, what the wave (AKA change) looks like, and where you want to be at the end of your ride (i.e., you want to avoid being smashed into the rocks!).

Knowing your goal and having your exit strategy is just as important as riding that big wave as far as it wants to take you. Get in position by creating a game plan that’s flexible enough for your purposes:

  • Define success carefully. Consider the ideal goal, but also what, at a minimum, will count as a win. Be generous.
  • Do your market research. Don’t skimp on this step! Rushing into a big change without doing the right research sets everyone up for failure.
  • Understand your strengths and weaknesses. Transformation affects every level of your organization. Make sure you identify leaders early in the process and give them the tools they need to execute their specific missions. Also, look for any gaps in communication across departments. Strategize about how to create more cooperation.

3. It takes more work than you think to catch that wave.

Paddle harder (or, as my husband says/yells, “paddle, paddle, paddle, paddle!”). Once you know you are in the right position and ready to catch the wave, the real work begins. You have to dig deep and do the work to catch that wave, so you can jump up on that board. Then you have to dig deep again to maintain your balance and ride that wave.

We know all too well that market forces shift. So even if you brilliantly complete the first two steps above, the market can suddenly leave you stranded alone on a deserted island. Alternatively, if those market forces do hold in just the way you were hoping, you’ll likely run into others surfing the same wave. So you need to be ready to adjust to markets shifting AND to competition shifting.

4. Waves don’t always do what you want them to do—be ready to adapt.

Change projects, like big waves, pick up momentum as they build. If you aren’t prepared to adapt, things can get out of control quickly. This means leaders at all levels of the organization must be empowered to rapidly adapt.

Successful startups are often successful because they have mastered the art of managing through change in precisely this way. Their agility gives them a huge advantage over large competitors in a market that rewards adaptability. But even giants can adopt and modify plays from the startup playbook.

For example, what is the status of your innovation pipeline? Is there an effective process for employees at all levels to introduce ideas up the chain? Is the culture such that employees feel motivated, heard, and supported in suggesting innovations?

5. Enjoy the ride and watch the view—you earned it.

In the midst of all this, don’t forget to savor the moment. Even if you only manage to ride the wave for a short time, take pleasure in the fact that it was your hard work that helped you see this new vista. And, appreciate the hard work that it took to get there. Going through the process has given you insights that you can use in the future too.

Finally, get ready to do it all again. Change, like waves, keeps coming.

While the Audacia Strategies team can’t promise to teach you how to surf Banzai Pipeline, we are experts at helping firms of all sizes manage through big waves of business transformation. Hey, we’ll take our inspiration wherever we can get it! If you’re looking for a bold team to help you build your way through change, contact us and let’s set up a consultation.

Photo Credit: IKO / 123RF Stock Photo

business valuation

Don’t Sell Your Business Short! Find the Right Business Valuation and Sell Your Vision.

Imagine if a big shot investor walked in the door today and offered to buy your company. How would you respond? Would you blindly tell her to make you an offer and then consider whether it’s enough for you to retire? Or is your business valuation clear in your mind, such that you could seriously start talking numbers?

If you don’t know how to value your business, you risk being taken advantage of, even if the amount an investor offers sounds really good to you. One thing is for sure, the numbers don’t lie, so it’s important to know them or to at least know how to access them when you need to.

Whether you’re considering selling your business in the near future or simply looking for ways to increase your value, figuring out your current business valuation is the place to start. So, what do you need to know?

How to determine a business valuation:

If you are even a tiny bit familiar with the world of corporate finance, it will come as no surprise that there are several ways to value a business. There is a plethora of valuation metrics out there: EV/EBITDA, P/E, PEG.

Your finance team can help you decide the right valuation metrics for your business. However, basic business metrics are the building blocks of all valuation. Here is a short list of the metrics that will inform your business valuation:

  • The value of the business’s assets. Included here is whatever the business owns: any buildings, equipment, product inventory, patents, logos, and cash on hand. Your balance sheet should tell you the value of your assets. An investor or potential acquirer will ask to see your balance sheet – and the rest of your financial statements. Be ready.
  • Revenue. Many investors use revenue as a quick assessment of a firm’s value. A quick method they might use to estimate the value is to employ a revenue multiple. A revenue multiple is simply a calculation of the offered valuation divided by one year of revenue. For example, if you have $100M in annual revenue and your valuation is $1B, your revenue multiple is 10x. Benchmark multiples vary by industry. You should ask your finance team to research typical sales multiples in your industry.
  • Earnings. Of course, revenue doesn’t equal profits. Amazon is the most famous example of this. Despite revenues being through the roof, they have only posted a handful of profitable quarters. This is why earnings matter and why multiples of earnings may be a better way to estimate a business’s valuation.
  • Cash-flow analysis. Finally, revenue and earnings valuation are only a good way to value a company if you can prove they will remain steady. Changes in competition, supplier prices, and industry trends all affect earnings. It’s important to reflect these in your cash-flow projections to demonstrate the rationality of your narrative.
  • Nonfinancial considerations. The above techniques will help you value the financial side of your business. But, as we know, nonfinancial considerations also come into play. Any research you can do into potential investors’ portfolio, could help you get a better valuation. For instance, does the investor own other businesses in your location? Does she own similar businesses? Has she put the word out that she has always dreamed of owning a business like yours? You can use any of these intangibles to your advantage to influence the sale.

Beyond business valuation to selling strategy.

Once you know your numbers cold and you’re ready to sell, it’s time to come up with a strategy. Without taking the time to strategize, you risk letting fatigue or anxiety influence your decision. So make sure to take a deep breath and hold on tight to your strategy.  

Whenever I advise clients dealing with this type of transformation I recommend the following:

1. Take the time to get ready. Beyond getting your accounting, contracts, and legal documents in order (which you should absolutely do!), also consider how you talk about your business.

Do you have a clear, concise, and impactful elevator pitch? At this stage in the game, chances are good that you have this. But it’s good to remember that first impressions count now as much as when you’re first starting out.

If you can you introduce your business such that anyone can understand it, the first impression is that you have your act together and the rest of your business operations are equally well run. This is good!

Can you simply and easily explain your business model, competitive positioning, and prospects? Take the time to review your business model, market dynamics, and business pipeline. Look for trends—past and future. Again, the clearer your business model and prospects the easier it will be for a prospective acquirer to understand the current and future potential of your business and the better your opportunity to improve your valuation.

2. Look from the outside in. I often see business owners that are so caught up in running their businesses that they cannot see how their businesses look through the eyes of their customers, business partners, and—yes, valuation experts.

It can help to ask for external perspectives. Ask your employees (especially those who are customer facing), customers, business partners, community partners, etc. about their perspective on your business. Do not get defensive. This is an intelligence gathering exercise, think of it as nothing more or less.

Use the information gathered to help shape your clear and concise business messaging (see above).

If there are differences between the feedback and your perception (or your desired perception) of the business, consider a gap analysis to address any fundamental misperceptions. Here are some easy-to-use templates for getting started with a gap analysis.

3. Consider your promotion strategy. You wouldn’t sell your house without clearing the clutter, giving it a fresh coat of paint, and engaging a crackerjack realtor, right? Business valuations are similar.

Review your external face to the market (e.g., website, sales materials, business cards). Are they dated? Do they reflect your business in a positive light? Take the time to make your promotional materials work for you. Yes, this will be an added expense, but again, think of it like making cosmetic improvements to your home to get you to a higher price point.

If you have time, engage in a promotional strategy to raise the visibility of your firm and demonstrate market leadership and awareness. This won’t apply in the case where an investor walks in ready to write you a check, but that’s also not the most likely scenario.

By elevating public perception of your business, you improve your market positioning, customer awareness, and you may also increase your new business pipeline—all important factors as you enter into a business valuation.

The above is really just to get you started down the path of valuing your business. For a more comprehensive guide (complete with helpful valuation worksheets), see Jeff White’s How To Guide. Audacia’s CEO, Katy Herr was quoted in the article too!

And if all of this sounds completely overwhelming, take a step back and take a deep breath. Finding a business valuation that not only reflects your sweat equity, but also sells investors on your vision requires patience. Honor your hard work by taking the time you need.

Finding an expert who has been through it can make a big difference in your confidence level too. At Audacia Strategies, we can work with you to get your numbers straight and weave them into a narrative that reflects your complete business valuation. Let’s discuss your vision!

Photo credit: rido / 123RF Stock Photo

corporate finance

6 Easy Ways to Empower Everyone on Your Team to Talk About Corporate Finance

We’ve discussed the issue of silo’d departments on the blog before. Most recently, we talked about tearing down the wall that divides sales and marketing. Another area where I see walls being built is around corporate finance. Smart executives know how important it is for all departments to stay on top of finances, but they often run up against resistance.

Frankly, that’s a shame. Effective financial communications are critical even when not speaking to shareholders or other investors. So, whether it’s because of a turf war, lack of discipline, or just plain uncertainty, it pays to remove these obstacles and make sure every key employee has a relative handle on corporate finance.

But “I Don’t Do Numbers”

I’ve heard a lot of otherwise talented marketers and corporate communicators say, “I’m a marketer/writer/communicator, I don’t do numbers.” This statement is frustrating to hear Every. Single. Time.

Here’s why:

1. Whether you work for a start-up, non-profit, government agency, or blue-chip titan of Wall Street, finances matter. If any part of your job involves convincing investors to risk their cold hard cash, you obviously better have those numbers on the tip of your tongue (or at least on the top of your mind).

But even beyond the typical financial stakeholders, media, employees, and customers all view companies through a financial lens. They are thinking: How stable are they? Are they hiring? Are they expanding their footprint in our area? Beyond our area? Understanding this perspective is crucial if you’re going to create a message that resonates with your audience.

2. If you can’t speak confidently about your organization’s business model, you’re missing an opportunity to add long-term value to your employer. Executives understand this point well. This is likely one big reason they have landed the positions they hold. And as a leader charged with mentoring others in the organization, you can’t stress this piece of corporate communications enough.

Organizations NEED communicators “at the table,” but if you can’t speak the language of business (finance) then you won’t be of value at that table. Regardless of what you take to be your primary role in the organization, if you want to rise in the ranks, you need to be on the lookout for places where you can “punch above your weight.” Being able to talk corporate finance is a huge advantage.

3. Financials are the proof points to your broader corporate message. In this context, financials can be revenue, market cap, overhead expenses, membership growth, etc. It is difficult to see how a marketer who doesn’t understand this point could truly understand marketing. Any marketing message that is divorced from a company’s finances risks falling flat, or worse, overpromising and under delivering can be a death knell for sales.

Empower Staff to Be Comfortable Communicating Financials

While it’s easy to say that every key employee should be able to speak about corporate finance, it’s a lot harder to make this goal a reality. How do you empower those within your organization to become comfortable with and effective at communicating financials?

1. If your company is publicly-traded, encourage your employees to read your 10-K, 10-Q, annual report, and proxy statements. You could also ask the finance director to do a short presentation or Q&A for all department heads.

2. Encourage leaders in marketing, sales, and other departments to take your IR lead out for coffee (bonus points if they do the same for your financial planning and analysis (FP&A) lead!). There’s no substitute for hearing about the state of an organization’s financials from the experts themselves. They can provide powerful insights and help in understanding the business model.

3. One great way to help get everyone up to speed is to read and talk about your industry publications (including the WSJ and FT if possible). It’s not important for everyone to read them cover to cover (or top to bottom online), but these articles will provide a general understanding of the impact of market movements on your industry. You could, for example, start a weekly meeting with a discussion of an important shift in the market and its impact on your business.

4. Actively follow your competitors and talk about what they’re doing well and where you have the upperhand. Encourage team members to listen to how peers speak about their business in the press, at events, in their writing, and in their financial filings.

5. Keep learning! This goes for everyone involved with your organization. There are some great FREE corporate finance courses out there (e.g., Finance for Non-Finance Professionals created by Rice University professors and offered through Coursera). Also, professional organizations (e.g., PRSA, IABC, NIRI) have opportunities to gain additional business savvy. Consider incentives for employees who put in the extra effort to gain skills in corporate finance.

6. Hire Audacia (joking… kinda). But seriously, sometimes bringing in communications professionals with an actual background in finance can make all the difference. Corporate finance is our world, let us introduce it to your team. Or, better yet, before you go through the trouble of trying absolutely everything, why not sit down for a consultation and let us steer you in the right direction?

Photo credit: pressmaster / 123RF Stock Photo

iconic brand strategy

Don’t Launch Your New Brand Until You Read This!—Everything You Need to Create Your Iconic Brand Strategy

Picture this:

The light bulb suddenly goes off and you have an amazing idea for your next iconic brand strategy. You’re so excited! There are logos and taglines and websites, oh my! There is social media marketing to consider. You have all of your ducks in a row…or at least, you think you do.

You launch your new baby out into the world and prepare for it to become iconic. And, maybe it will be. But it’s probably going to take a lot of behind-the-scenes work to make that happen. There is a good reason seasoned entrepreneurs often say, “It only took me 10 years to become an overnight success.”

The problem is that it’s easy to get caught up in the excitement of creating something new and to forget that becoming an iconic brand requires a lot more than a great logo, tagline, and website. All of that shiny stuff is really just window-dressing. The research, positioning, and messaging are the real nuts and bolts behind an iconic brand strategy.

So how do find the discipline to lay the groundwork for success before you let yourself get swept up in the more glamorous side of launching your new brand?

First, it’s important to keep in mind that just because you need to do the hard groundwork, that doesn’t mean you can’t also reward yourself by working on the fun stuff, like planning the huge launch party you’re going to throw when you’re ready to announce.

As you read through the below list, it’s natural to feel a bit overwhelmed. But rest assured that if you take your time and insist on being intentional as you work through this process, you will be overwhelmed (in a good way!) by the end result.

Key Considerations for Launching Your Next Iconic Brand Strategy:

1. Start with the basics: Is there a market? AKA look both ways before you cross that street.

Whether you are creating a brand strategy for a new product or for an extension of an existing product line, it’s important to do some serious research into the potential market that you will want to tap into. There are three important areas to consider here.

A. Market/situational awareness:

Research the current tools, technologies, services, and work-arounds. Positioning your brand in the market requires extensive understanding of what else is available. You will be looking to gain a share of these markets.

Ask the following questions about existing brands and peers:

  • What works/doesn’t work?
  • What’s the broader discussion? Are companies/thought leaders talking about this capability?
  • Where is the solution on the technology cycle (cutting edge vs. mature)?
  • Is there pending legislation or regulation that may shift the market dynamics?

B. Market segmentation and prioritization:

Once you have a handle on what the market looks like, dig deeper. Get as specific as you can about what your real target market looks like. Segment different target groups in the way that makes the most sense for your brand. Prioritize, i.e., figure out which of these groups to target first, second, third, and when. Finally, determine each segment’s pain points and specific challenges.

Ask yourself:

  • Who is my specific target market? How do the buy? When? Why?
  • Where are these customers? Consider industry, customer size, geography, innovation requirements, you get the idea.
  • What are the customer pain points our product solves?

C. Competitive analysis

The last piece in the market puzzle of your iconic brand strategy is doing a thorough competitive analysis. This will help determine how to position your brand both in terms of the current market landscape and projecting into the future potential shifts.

Ask the following about your competition:

  • Who are they?
  • Where are they (physical locations, virtual locations, operational status)?
  • How big are they?
  • Market share (try to get at least a notional sense)?

2. Now, go deep inside your business. How will your new brand change your operations?

Depending on how much of a transformation you plan to make as you build your iconic brand strategy, this will take a good mix of pragmatism, creativity, and a bit of speculation. It helps to bring in your team to get a full picture of potential business impacts.

As an example, you might consider if you need to make changes to your business structure.

  • How will you need to structure your current business to accommodate the new brand?
  • Or is this really a new business/company? A spin-off? A joint venture? A product extension?

3. Prepare your brand messaging–this is huge!

Messaging can be the difference between launching a successful brand and launching an iconic brand. It’s the difference between a basically reliable casual shoe and a Nike. Try to figure out what unique value your brand offers and more importantly, how to get the word out. This may take some trial and error. Above all, make sure your messaging reflects your brand promise.

Here consider:

A. Value Proposition

  • Why us?
  • Why now?
  • What problem do we solve?
  • What pains do we alleviate?

B. Brand promise

  • What are you offering your buyers? Why is it important? What does your brand stand for and why?

C. Positioning Statements

  • How do our priority market segments prefer to receive information?
  • What is the tone they prefer?
  • How can we signal social proof?

D. Message Architecture

Think of message architecture as scaffolding for all of your marketing content. Your message architecture or framework will support and shape all the content you produce going forward. When marketers and communications pros talk about messaging, they are talking about the general impression they want customers to take away from the content itself.

When it comes to designing the message architecture, a good rule of thumb is to keep it simple. This article from some content experts is a good place to start and it offers a number of useful examples.

E. Elevator pitch – you have 15 seconds in an elevator with your dream client – what do you say?

Every new brand needs a catchy elevator pitch. This should be easy once you’ve done all of the research and analysis above.

4. Brand Identity — most people skip directly to this step, but putting in the upfront work is critical to developing an iconic brand strategy.

This goes beyond the broader messaging to even less tangible elements. Your brand’s identity is really the public perception of the brand. A lot more than words on your website goes into your brand identity. Unfortunately, some of this is out of your control, but you can learn to influence this if you really study corporate communications or find someone else who has done so.

Here the following are crucial:

A. Is this a stand-alone solution or does is it part of a family/suite of products/solutions?

B. Reflect on your market research and align to your aspirational positioning.

C. Consider whether you need/want a tagline — a tagline can be a powerful brand discriminator and shorthand for what’s unique about your brand.

D. Don’t forget to reserve your URLs!

5. Launch Strategy — get ready to be big!

Yay! Now that you’ve put in the real grunt work, you can start to plan the launch strategy for your new brand. I offered some good tips here in a recent blog post. And just imagine how much confidence you’ll have gained once you’ve completed the list above.

I know that this all sounds like a ton of work and it is! But this is your baby. What could be more rewarding and satisfying than watching your idea grow from a thought bubble into a household name?

New brands are exciting and can be overwhelming. We get it. Audacia Strategies has been there. Let us be your guide through launching your next iconic brand.

Photo credit: auremar / 123RF Stock Photo

executive transition

Executive Transition Part II: Preparing Your Executive

If you missed part I of our series on executive transition, click here to read more about how to prepare for planned or unplanned c-suite changes.

Last time, we discussed how to prepare your organization for an executive transition. Because stakeholders watch these types of big transformations carefully for any signs, positive or negative, of what the future will bring, it is crucial to take the necessary steps to get everyone on the same page.

By far, the most important element of a successful c-suite transition is properly preparing your executive. This is where investor relations officers and communicators really earn their keep. Both roles play a critical role in supporting and enabling a successful executive transition.

Prepare to prepare your new executive.

First, take some time to gather key resources to help your new executive transition smoothly. For instance, create a portfolio including the most recent corporate overview, key messaging statements, shareholder overview, previous public statements, an analysis of the competitive landscape, key events/timing, etc.

Next, before you begin strategizing, put yourself in the shoes of your new executive. Ask yourself and your team crucial questions, for example: Is the new leader, whether interim or permanent, an internal hire or will she need to be brought up to speed on your organization’s culture?

Keep in mind that while the new executive may have been brought on to accomplish specific goals, the more she knows about the organization as a whole, the better able she will be to accomplish these specific goals. So, don’t be afraid to ask the new executive what support she needs from you during this transition period.

Answers to these questions will help you better enable your new executive to smoothly enter her new role. Once you’ve asked and answered these critical questions, you can now put yourself in the shoes of your key stakeholder groups and begin the hard work of prepping your executive for the transition:

1. Define key messages.

As discussed last week, executive transition = risk. Our communications goal throughout this process is to make the change appear less risky, insofar as possible. An orderly transition will give investors, employees, and customers confidence that the company, whether public or non-public, is in control of the transition.

What does this look like in practice? It means, at a minimum, defining key messages around the following: (a) any insight you can provide into the reasons for the change, (b) why the new executive is the right hire at the right time, and (c) reinforcement of key company strategic messages.

(a) Why did the previous C-suite executive leave?

Present a clear rationale for the change, whether it was by choice or not. That said, word choice in describing the transition is absolutely important. Aim for language that is natural, concise, and respectful to all transitioning parties.

Keep in mind that communications during this time can be a delicate balancing act between signaling Board control over the transition, legal sensitivities, and acknowledging organization strategy. So, be prepared for (and even welcome) multiple perspectives as this verbiage works through internal approval processes.

Even under the best of circumstances, there will be speculation about why the previous executive left. This makes it even more important to ensure that lines of communication are clear. Transparency will ensure that the company isn’t perceived as holding back information from stakeholders.

Whatever words you choose, be sure to avoid anything that makes transition communications appear confusing or bitter, as this can stoke speculation, spook investors and employees, and make for a generally unproductive business environment.

(b) Why is the new executive the right hire at the right time?

It’s important to have a clear message about why the new c-suite executive is the right man or woman to take on the job. Discuss the strategic criteria for this hire. What differentiates your executive from his or her peers? Leverage any previous experience leading similar organizations or leading through similar market changes.

Especially if this transition was unexpected, anything you can say to emphasize that your new executive has been preparing to step into this ideal position at this moment, is helpful. Don’t be afraid to think big here. Talk to your Board and your new executive about his vision for the future of the company and find creative ways to work that into your messaging.

(c) How does this support the company’s strategy?

Finally, make sure to re-emphasize the company strategy. This applies whether the overall strategy is changing (e.g., because the previous CEO was fired due to poor performance in shifting market conditions) or the basic strategy is staying the same, while the new leader is free to make small tweaks to business operations.

Either way, it’s a good time to revisit the corporate vision and mission to remind stakeholders that the fundamentals will remain solid through this period of transition. Bonus points for showing how the new executive has demonstrated strengths in key strategic areas.

2. Allow for acclimation.

To the extent possible, give your executive some time to get her feet on the ground and learn more about how the organization runs. Most executives will want at least a 30-day transition period. However, depending on the business circumstances this is not always possible. It’s best to be upfront with your executive about the timeframe from the beginning.

At the very least, be sure to carve out time before key meetings with employees, investors, and customers to prepare. Discuss the stakeholder group personalities, hot buttons, previous conversations/promises/expectations, and the competitive environment.

3. Consider key prep strategies.

Initial interactions with key stakeholders should reflect: (a) reasons the executive chose your organization and (b) assurance that the early stages will be about listening to key stakeholders to best understand their view and expectations for the organization.

If possible, it is a great idea to organize listening sessions with stakeholder groups during this transitional period. These sessions, can provide your executive with the opportunity to hear directly from employees, top shareholders, and key customers and get them out of the “headquarters bubble.” It can also demonstrate that the company is committed to listening to diverse perspectives during this time of transition.

If your company is public, it’s crucial to prep your new executive on RegFD, especially your firm’s policies regarding RegFD and the quiet period. Make certain that your executive is prepped to handle impromptu questions (in the elevator, at a conference, etc.) by returning to their key message of why he took the job and his commitment to listening to stakeholders for the first 30-60 days.

Along these lines, roleplay likely Q&A with key stakeholder groups. Remind your executive that it’s better to stick to what she knows even if it means not fully answering the question, than going off-script and saying something inaccurate.

As much as you aim to control communications, though, there will be questions, calls, emails sent to IR, CEO, CFO, CCO, anyone who can be reached. Make sure that appropriate communications roles are established and shared. Generally speaking, it is safest to have all questions routed to media relations and investor relations. From there, you can assess and engage your executive as appropriate.

4. Consider your best public introduction strategy.

Is an industry-specific trade show or other important event coming up? This might offer a good opportunity to introduce your new executive in a lower key environment and have key customer or partner intro meetings. These types of events are also good opportunities to conduct initial media interviews.

Do you need more time for your executive to get her feet on the ground? Discuss and agree on a timeframe to set market expectations. Then make sure this information is broadly communicated to key channels through press releases, 8-Ks, internal messaging, etc.

For example, you might include a sentence in an employee update that says, “Jane Doe expects to be meeting with our key customer accounts over the next 30 days and will visit our major employee population centers over the next 90 days.” When speaking to external stakeholders, set expectations with a comment such as, “John Doe will participate in XYZ conference/earnings call/investor day/etc. during the next few months.”

When it comes to ushering in a successful executive transition, there are several moving parts to keep in mind. As complicated as executive transitions can be, they are also exciting times for companies.

It definitely pays to think through your strategy and prepare your executive. Audacia Strategies can help make your executive transition as smooth as possible. We’d love to work with your team to develop the right strategy and outreach plan. Contact us to get started!

Photo credit: racorn / 123RF Stock Photo

Executive Transition - Handshake

Executive Transition Part I: Planning is Not Optional

Stakeholders can learn a lot from watching an organization go through executive transition. Handled well, c-suite transitions impart confidence in the organization and its future direction. Handled poorly, leadership changes can alert investors to bigger issues within the organization, whether material or merely perceived.

The c-suite (i.e., CEO/CFO, for our purposes today) is the public face of an organization. According to the 2015 Edelman Trust Barometer, an annual study on global trust and credibility, 43% of people say that they trust the CEO as the spokesperson of the company.

Executives embody the credibility of the company. There is a good reason transition of these key leadership roles is watched so closely: as the c-suite goes, so goes the health of a corporation.

In Part I of this two-part series, we’ll talk about the planning and announcement of an executive transition. Stay tuned for Part II when we’ll discuss how to prep your new executive for primetime.

Executive Transition = Financial Risk

We all know there could be any number of perfectly benign reasons for an executive to choose to leave a particular company, knowing this doesn’t make an executive transition any less of a risk in the eyes of stakeholders.

While you may feel energized by the winds of change blowing through your organization, from the perspective of an investor or a customer, a change in leadership introduces an unknown variable, which is just a different way of saying financial risk.

When the current CEO is performing well, there are questions about whether her successor will be able to maintain the momentum. When the current CEO Is performing poorly, there are questions about how quickly her successor might be able to turn things around.

A leadership change can also be unsettling to employees, since the CEO is the cultural leader of an organization. So transitions also raise questions about the cost to organizations in terms of human capital.

Since all eyes are on you, c-suite transitions are really make or break. It’s so important for these types of big changes to be planned and carefully orchestrated. Okay, let’s talk strategy!

2 Types of Transitions: Planned and Unplanned

There are really just two types of c-suite transitions: planned and unplanned. You should have a plan either way! (Now is probably a good time to review my recent post on Crisis Management.)

There are unique challenges associated with each type, but with the right transition strategy in place, you will be equipped to manage unfolding events as much as possible.

1. Planned Executive Transitions.

If you have the luxury of knowing that a c-suite transition will take place, make sure you have a plan to communicate and acclimate external stakeholders (e.g., shareholders, customers), as well as employees.

While executive transition is generally viewed as a risk, there are steps you can take to minimize the risk in the eyes of investors. A well-considered transition plan indicates a healthy corporate succession plan aligned to the company’s stated strategy.

Additionally, if you have the benefit of time and a transition period of anywhere from a few weeks to a few months, it’s an opportunity to engineer a smooth hand-off between executives.

Joint meetings with current and interim leadership, as well as investors, customers, and employees are a strong signal of organizational health during transition. Consider what will infuse your audience with the most confidence.

2. Unplanned Executive Transitions

If a CEO/CFO must step down unexpectedly, be prepared. This means being ready to communicate quickly, transparently, and as completely as possible. At the very least, I recommend having the interim leader identified along with his qualifications as soon as possible and preferably simultaneous with the transition announcement.

You should also discuss the Board’s search process for a permanent leader and criteria for the next leader. Also, discuss Board strategy—particularly, if the transition is a result of the Board wishing to move in a new direction. If possible, a broad timeline for a decision will also help calm stakeholders as there will be key milestones and communications to watch.

It’s always important to communicate as much as possible, as transparently as possible. But during times of executive transition, strong communication is absolutely essential. Communications that appear to be less than forthcoming and/or light on path forward will only breed rumors and ramp up perceived risk.

Keep this quote at the forefront of your communications strategy:

“If you don’t give people information, they will make up something to fill the void.” – Carla O’Dell, Ph.D., President, American Productivity & Quality Center

There will be questions, calls, emails sent to IR, CEO, CFO, CCO, and anyone who can be reached. Make sure that appropriate communications roles are established and shared. This responsibility will generally fall to media relations and investor relations.

Don’t forget about timing

Whether your executive transition has been a long time coming or out of the blue, your communications strategy for transitions should also include strategies around timing. In corporate communications, timing really is everything.

For instance, unexpected transitions raise questions about an organization’s financial health. One way to ease this concern is to consider timing the transition announcement to coincide with a quarterly release. If such timing is impossible, reaffirm or refer to previous transition strategies with which stakeholders are familiar.

It’s also important to announce the transition to employees, simultaneous with an external release. If you announce internally and externally at different times, rumors will fly compounding concerns about who is really steering the ship.

I recommend going so far as to have a specific employee communication plan to address key cultural characteristics and how the c-suite transition will affect the organization from a big picture perspective. When your executive is up to it, set up a town hall meeting where employees can be formally introduced to the new face of the company and have their questions answered.

Next week: we dig deeper into how to prep your executive (interim or permanent) for a successful transition.

In the meantime, if your organization is gearing up for an expected or unexpected transition, Audacia Strategies is here for you. Having the right strategy in place will convert your transition into a transformation. Contact us today to set up your consultation session.

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