Little Mistakes Illustrate Important Principles

No one likes to see their stupid mistake to be plastered on the internet, me included. That said, it’s hard to pass up writing about a personal blunder that illustrates important principles.

A week and a half ago my supply of business cards was getting low and a business trip was nearing. It made sense to make the new business cards consistent with my web site’s newly redesigned graphic theme, so I redesigned them. When the card publisher’s web site refused to accept my design file, I called their 800 number.

For the next 15 minutes, a very competent customer service rep somewhere in the world explained why the format wouldn’t work and rebuilt the card using my graphic elements. He’d show me a new version online, I’d ask for a tweak, he’d respond, then I’d refresh the page to see the changes. We repeated the cycle until it was done, and I approved and ordered the cards.

The cards arrived on my doorstep the Wednesday night before I left early for the two-day trip, and I was very pleased with the graphic appeal of the cards. Happy to have my original idea for the design implemented, I packed a supply of new cards before crashing for the night.

During several meetings on Thursday, I handed out a few of the new cards. Friday morning while handing one to a friend, I noticed something wrong. In front of my twitter address “@2020outlook” it was supposed to read “twitter:” but instead it said “tweeter:”, and also the blog URL had an embedded “@” sign. For a few seconds I wondered why the service rep made those silly mistakes, and then quickly shifted the blame where it really belonged – me.

I have a few old cards left, and the corrected ones will be here in a few days. Still, it’s valuable to learn (or relearn) the general lessons apparent from this mistake:

Recognize when details need your full attention. In a rush to get to other tasks after I completed the order, I let my focus on getting the new design right distract me from the more important job of making sure the textual details were correct. The lesson: leaders need to continually and accurately evaluate how much time to devote to details versus the big picture.

Don’t waste time beating yourself up for mistakes. After a mistake is made, focus on correcting it and then move to your next task. If you tend toward perfectionism as I do, this can be difficult. The lesson: when a leader makes a mistake, it’s fine to do a post mortem to determine what could have been done differently. Once you’re done, however, move on without regrets and refocus on growing your business.

In my case, I devoted the trip home to self-flagellation. It didn’t take the whole trip so I used the rest of the time to do something productive – outlining this post.

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.

Urgent Important Matrix

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?

Restart with the End in Mind

Chances are you’ve heard Stephen Covey’s Habit #2 in his classic self-help book called Seven Habits of Highly Effective People: “Begin with the end in mind.” Or said another way by the author of the Peter Principle, “If you don’t know where you’re going, you probably will end up somewhere else.”

When a business is launched, founders typically have a clear end in mind. A successful company survives the first couple of years and finds its way to profitability or at least breaks even. Then a critical point is encountered where the CEO’s focus on “where we’re going” can devolve into a focus on “staying alive.”

An early 20/20 Outlook post tagged the resulting condition as “The CEO Dilemma.” The CEO lets the pressure to fix operational issues and manage cash flow dictate a daily routine of addressing those needs and neglecting his/her responsibility to relentlessly consider how to grow shareholder value.  Working in instead of on the business becomes a comfortable norm.

If this sounds familiar, realize that you can hit the RESET button by employing the 20/20 Outlook process. Understand how simply saying “if I build a great business, I don’t need to worry about my exit strategy” can keep you from leading the pack among acquisition candidates in your market space.

Instead “restart with the end in mind” by considering the sources that contribute to the value of your company’s product and service offerings. Drill into how relationships with potential acquirers and potential acquisitions can unlock and grow that value. And create and implement a rational plan to align your company with other organizations that can help your business reach its full potential and move into a leadership position.

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.”

Technology M&A Is Accelerating

A few days ago, I posted links to interesting articles in an exit strategy update. Indications are that the next 12-18 months  will produce an increase in the acquisition of technology companies, so having an exit strategy in place and aligning with potential acquirers remains top of mind for CEOs. Let’s review some of the evidence.

One significant indicator is that tech companies have started using debt to raise capital. A recent WSJ article said that “the decision to take on debt breaks from tradition in tech, where companies have typically preferred to raise money by selling stock. Debt has become a more attractive fundraising option largely because interest rates are low… Turning to debt is an especially big change for software companies, which typically generate lots of cash and aren’t saddled with large one-time expenses like opening a factory.”

While the focus of the article was on the largest companies like Cisco, Microsoft, H-P, Oracle Corp., International Business Machines Corp., and Dell Inc. who raised more than $20 billion combined in 2009 selling bonds, smaller companies are following suit. Salesforce.com’s $575M debt offering and Adobe’s of $1.5B, both in January, mean that the acquisition drive is broadening.

Yesterday StreetInsider.com quoted an FBR Capital Markets report that “software vendors are flush with cash given the cashflow-rich nature of the software model and more than a handful of vendors have even recently raised additional capital.” The FBR Capital report even suggested some likely acquisitions:

So what should CEOs of smaller technology companies who want to grow shareholder value do? At a minimum, three things:

  1. Understand who your most likely acquirers are and keep the list up-to-date.
  2. Ensure that your company stays focused on activities that increase your attractiveness to those acquirers.
  3. Create partnerships with potential acquirers and other companies who make your company more compelling to those acquirers.

Whether you want to be acquired in the short term or the long term, your company’s value is in the eye of the beholder, and the most important beholders are acquirers.

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:

Partnerships When

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:

Partnerships Why

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

The Genesis of 20/20 Outlook

While a CEO may have an intuitive feel for how and whom to partner with, the daily rush of keeping the business afloat makes it difficult if not impossible to focus on other areas. If the company is in growth mode, focusing on operations and cost while failing to inject significant resources into marketing and sales stifles growth. If the company’s revenue is flat, new vision for growth supported by a key partnership or perhaps an ecosystem of the right partners is needed.

20/20 Outlook is a process for cultivating a new growth vision for a company (or business unit) in the $5-50M range, then identifying and implementing robust partnerships supporting that vision. In today’s highly interdependent world, creating a breakout strategy must include beneficial relationships that enhance the value of the organization.

Fusing three disciplines – building successful partnerships, making strategic acquisitions, and directing product strategy – into a coherent framework and context for management decisions, 20/20 Outlook advances the exit strategy, all based on years of experience working with a multitude of high tech companies of all sizes.

The 20/20 Outlook process has three goals:

  1. Develop a clear vision that aligns the client company with potential acquirers.
  2. Create productive connections between the client and relevant potential acquirers, acquisitions, and partners.
  3. Collaborate and share responsibility for measurable results, transfer skills to the client, and gradually diminish dependence to the point of disengagement.

The CEO Dilemma

Leaders of high technology firms often face a dilemma: while they feel compelled to spend all of their time in their business, they realize they should spend more time working on their business. A high tech CEO has a finite amount of time that must be allocated across multiple activities such as overseeing operations, managing costs, marketing, sales, vision, and partnerships.

The reality of keeping a high tech business moving forward while maintaining positive cash flow often leads the CEO to focus almost all his/her time on operations and cost. With so much time spent on these two activities, they can become his/her comfort zone. Days can become consumed with adjusting business processes and managing costs.

While these activities are necessary, investors and boards want more. They want to see a clear path to a dramatic increase in the future valuation of the business, and they want to see the CEO spending time to accomplish this. How the CEO changes his/her own behavior usually takes one of two directions, depending on whether the company is growing.

If the company has a proven business model in an expanding market, the CEO needs to focus more effort and attention on marketing and sales to accelerate growth. The business model has been proven, and increasing the effectiveness of “turn the crank” activities must be the objective. On the other hand, if company growth has not materialized or has stagnated, the CEO must modify and expand the vision that drives the company in order to break it out of its slow growth mode. New vision and strategy often dictates more alliance-building and strategic partnerships to support the new vision.

The trick is to create a pragmatic framework for managing implementation of the new vision while continuing to keep operations humming and costs down. The 20/20 Outlook process was developed to address the dilemmas and challenges faced by CEOs desiring to grow the business and communicate more effectively with investors and board members. Augmenting the management team with  an experienced outside adviser enables the CEO to create breakout initiatives while continuing to manage daily operations.

CEO Activities and Zones

Source: Conversation with Executive Edge

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