A Milestone for 20/20 Outlook
Exactly six months ago, 20/
20 Outlook LLC officially opened for business. If it seems longer than six months, you’re right – planning started over 18 months ago. I felt “nudged” in a new direction and began exploring how to deliver value to CEOs of private companies. The answer ultimately lay in combining an unusual (some might say “weird”) combination of C-level experience in partnerships, acquisitions, and product strategy for startups through billion dollar companies to create the 20/20 Outlook process.
In February, I set a goal to achieve a certain level of business in six months, and we’re on track to surpass that goal this month. Experienced friends in the consulting business say it takes a year to get it off the ground, so it’s exciting to reach this milestone in the middle of what no one but Washington would call a booming economy.
Most new businesses move in different directions once launched, and this one is no exception. Connecting with great clients was planned, and working with some great CEOs to help them achieve their goals is exciting. What was unanticipated is how many people have said “you should write a book” (more on that soon).
No one could be surrounded with a more supportive group of industry friends, comprising serial CEOs, C-level execs, VPs, VCs, private investors, consultants, and other computing industry leaders. Thanks to each of you for being so open and helpful with your advice and encouragement.
Finally, a special note of thanks goes to Mike Shultz, Infoglide Software CEO. His willingness to be a sounding board and continual idea source for 20/20 Outlook is deeply appreciated.
Important Indicators are Up
Because I help companies define an exit strategy and grow value accordingly, I’m always seeking better sources of data that capture the current state of the investment world. Pitchbook is one source that publishes particularly useful information about fundraising, investments, and exits. A recent Pitchbook presentation suggests that we’re on the verge of significant growth in private equity investment during the next year, and that’s good news companies moving toward an exit.
One factor mentioned in the Pitchbook prez is that capital overhang is high and growing. When that happens, valuations tend to increase because so much money is looking for a place to land and produce a return.
Additionally, chart below depicts that the number of quarterly private equity exits through corporate acquisitions, initial public offerings, and secondary sales is on the upswing after reaching a low in early 2009.
Finally, one of the best analysts in the business, Richard Davis of Needham and Company, commented in his newsletter that it’s been 25 years since he’s seen so many companies in a great position for an IPO.
Taken together, all these indicators suggest that, despite the continuing malaise in the broader economy, a CEO who keeps his/her company’s partnerships, product strategy, services, and partnerships aligned with potential acquirers can expect to see greater opportunity this year and through the next.
Clarity Affects the Bottom Line
Last week I spent a morning leading a management team through a strategic positioning session to achieve more clarity about their business. The next day I read an article containing this quote by the leader of a technology incubator:
My team and I probably saw, heard or read more than 200 business pitches last year. And after about 75 percent of them, we didn’t understand the businesses. I’m convinced that this is a primary cause of entrepreneurial failure. Every entrepreneur needs to be able to clearly and succinctly communicate the essence of his or her business to an intelligent stranger.
While it’s important for startups to have an elevator pitch, it’s equally important for the management team of an existing business to share a clear vision that provides a context for making business decisions. The lack of this understanding is so common among $10-50M companies that I’ve stopped being surprised when they can’t articulate a clear positioning statement. Why do you think so many companies have trouble with something so basic and so important? I have a theory.
Recently a CEO friend in Dallas shared the “PerformanceManagement” matrix below. While the origin is unclear, it’s a useful framework for examining issues, and it offers a clue as to why so many companies lack the clarity they need to operate efficiently.
For many CEOs, sustaining an up-to-date picture of the company’s value in the market is either neglected or delegated to Marketing because it lacks urgency compared to operation issues and cost management. This falls under the heading of “Poor Planning.” The CEO’s number one priority is growing shareholder value, and clear strategic thinking contributes directly by enhancing the quality of important decisions affecting future value.
If you’re a CEO, do you stay on top of your company’s value in the eyes of players that matter, especially potential acquirers? Or will you leave this non-urgent critical issue unaddressed until the day you’re shocked to read that your closest competitor was just acquired by a company with whom they’d partnered?
I’m On a Mission!
In Bob Dylan’s song “Gotta Serve Somebody” he points out that, no matter who we are, we all have to make significant choices:
You’re gonna have to serve somebody
Well, it may be the devil or it may be the Lord
But you’re gonna have to serve somebody
The implication is clear for our spiritual life, but the broader principle applies in our work life. At the core of what drives us are competing priorities, and the one at the top will be the “decider” most of the time. What is the top driver in your work life?
What drives me personally is a passion for building effective business partnerships. Over the years, I’ve seen great ones lift companies to new levels of value and effectiveness. Much more often, I’ve seen poorly planned ones consume significant resources with little or nothing to show for the effort.
Three principles characterize the most effective partnership strategies – context, planning, and execution:
Context means understanding your own organization and its offerings in relation to the market they live in. What kind of company are we? What value do we deliver? Whom do we compete against? How are we unique? A simple positioning project can bring great clarity of thinking and purpose, yet it’s amazing how unclear the answers to these questions often are. If you don’t understand your own company, don’t expect success in partnering with others.
Planning partnerships is imperative. Stephen Covey’s second habit “Begin with the end in mind” is based on ancient wisdom from Aristotle that’s often ignored. Once armed with a clear understanding of your market positioning, you’re ready to think about partnering and what you want to accomplish. What is your vision for growing the value of your company? If you clearly understand where you’re going, business partnerships will help you get there faster.
Execution of partnerships requires effort and resources. Why expend time and effort in creating a business relationship only to let it die from lack of care? A partnership needs focus in order to produce expected benefits. Increasing the odds of success requires architecting self-sustaining elements into the partnership from the beginning, and that can only be done successfully through clarity of purpose and a clear vision for growth.
Anonymous, my all-time favorite writer, said it best:
“Action without Vision just passes time.”
When Should You Partner?
Given that we’ve answered the “why partner” question, now let’s think about the “when to partner” question. Marketplace issues, whether threats or opportunities, commonly drive partnership decisions. For each issue, consider three factors that determine your desire and ability to grow through partnering:
- Timing: What is the timing associated with this threat or opportunity? Is it immediate or long-term?
- Potential Impact: What is the potential impact of some threat or opportunity that is currently presenting itself? Is it high or low?
- Ability to Respond: What is my current ability to respond? Is it strong or weak?
As far as the Timing factor goes, if an issue, i.e. a threat or an opportunity, is not immediate, set it aside. Maybe someday you’ll find time to worry about that one!
For each immediate issue, determine whether it can have a relatively high or low impact and how strong is your ability to respond. Here’s a diagram depicting these points, followed by a brief description of each one:
High threat/opportunity, strong ability to respond (“Pursue Aggressively”)
This issue is too pressing to postpone, and your company has the resources needed to address it aggressively through product enhancement and new product creation.
Low threat/opportunity, strong ability to respond (“Quick Hits”)
When you spot a weakness in a competitor’s ability to respond to such an issue, attack by leveraging your strength in this area.
Low threat/opportunity, weak ability to respond (“Prepare to Respond”)
These are usually “who cares” issues now that may grow into high impact issues later, so keep an eye on them while doing little to address them.
High threat/opportunity, high ability to respond (“Create Partnerships”)
If you can’t adequately respond to a pressing threat or opportunity, a partnership is the right answer. A partnership can be a precursor to an acquisition.
If I’m right and I’ve communicated clearly, you have a better understanding of why and when to form a business relationship. These are practical business concepts that will ensure your efforts are directed at the best opportunities to achieve the desired outcome for your business – a business that knows where it’s going!
So Why Partner at All?
Developing a partnership strategy is a critical concern for any company. Key to its formulation is an understanding of why partnerships make sense and under what circumstances they should be pursued. Understanding the context for developing a partnership strategy clarifies the decisions that need to be made.
So why partner at all?
“Whether it sells computers, clothing, or cars, your firm’s fate is increasingly linked to that of many other firms, all of which must collaborate effectively in order for each to thrive… more than ever before, success depends on managing assets your company doesn’t own.” (from The Keystone Advantage by Marco Iansiti and Roy Levien)
While this is universally true, it’s especially the case in immature and fragmented markets where no one company can possibly own all the pieces of a solution. Customers face a bewildering array of possibilities and choices. Gaining their attention and commitment is not as simple as relating your value proposition. You’re not just selling against direct competitors – you’re usually competing for a piece of a finite budget, and the customer can choose to invest in another area while declining to buy anything from you or your competitors.
By understanding the broader space in which you compete and by knowing how your company fits within that broad context, you’re more likely to successfully educate your customer and help them move to a buying decision. If you’ve analyzed the total market and have partnered and/or acquired to achieve a more complete set of offerings, you’ll be in a position to meet almost any customer’s needs.
So what are the most common reasons to partner? Here are some that come to mind, in no particular order:
- Increase: ability to deliver, credibility, revenue, market presence
- Leverage market clout and intellectual assets of market-leading companies
- Become certified on a process or technology
- License a product or technology
- Remove a competitor
- Negotiate strategic alliances
- Prepare to execute acquisitions
While these are fairly specific, here’s a matrix that boils the reasons down to the most common ones:
In evaluating potential partners, determine early on which drivers are important to your company, the partner, or both. Then begin compiling a list of specific factors that may be important to the target partner. These may become critically important in later negotiations (we’ll talk about “elegant negotiables” another time).
Next we’ll address the issue of when to partner, i.e. under what circumstances does it make sense).
“Partnerships Don’t Work”
That may not be what you’d expect from someone who builds partnerships for a living, so stick with me as I explain.
We’re all familiar with the dreadful statistics about acquisitions and how the large majority of them fail to deliver the promised results. The reasons are many, and we could easily spend several posts on the subject. I haven’t seen similar stats on partnerships, but they are probably just as bleak.
A funny term popped up in the 90s called “Barney announcements” based on so-called “partnerships” that began and ended with a press release whose message echoed Barney – “I love you, you love me” – but with no real substance. During the runup to the internet gold rush, this type of announcement was all too common.
Many CEOs feel like they’ve been burned by partnering. They’ve gotten behind a proposed partnership, even passing up other opportunities to put resources into it. After the partnership produces a Barney announcement and ultimately fails to produce – greater revenue, more market visibility, access to customers, or whatever was promised – the CEO forms a bad opinion of partnerships in general.
So why is it that so many partnerships fail? The most common reason is that the people pushing the partnership don’t do the hard work and planning required for success. Either they don’t understand the process, or they are unwilling to invest the time and effort needed to create a productive partnership. Gaining an understanding of all the interests of the parties takes time, and if partnerships are an afterthought, the time just isn’t there to maximize the chances for success.
The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression.
– The late Sir John Harvey-Jones, Former CEO of Imperial Chemical Industries
