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).

Build a Viable Business, or Build Toward an Exit?

If you’re a CEO, board member, or investor in a high tech company, growing shareholder value is a top priority.  The obvious challenge is taking the right steps and avoiding the wrong ones. Two divergent views on how to grow value are commonly held:

  1. Focus on growing a viable business and let the exit take care of itself, and
  2. Base each corporate decision on your targeted exit strategy.

Business v. Exit

For years I was certain that the former view was the best one. Simply keep evolving the business with desirable products and services offered at a reasonable price with good support, then at some point you’ll be acquired or else the conditions will be right for an IPO.

In today’s increasingly competitive environment, I’ve reconsidered that position. Most companies find that an IPO is out of the question for now, so if they articulate an exit strategy, it’s “to be acquired.” While building the business continues to be important, the complexity of the current market landscape and, even more importantly, the speed at which the market and market perceptions change, demands a more sophisticated approach.

Taking a stand at either end of the continuum above can result in failing to reach the preferred exit. If you focus only on growing a viable business, you may survive but you may not trigger the financial event that the investors and shareholders want to occur. On the other hand, if you focus solely on the exit, the business can suffer and your company may be eliminated from consideration by potential acquirers.

The purpose of 20/20 Outlook is to ensure that the proper balance between these extreme positions is achieved, i.e. that the company’s value increases through relationships with potential acquirers and potential acquisitions while you continue to grow the business. The process defines clear steps that enable you to (1) view your company through the eyes of potential acquirers and potential acquisitions, (2) define a realistic exit strategy, (3) align your product strategy in light of what you’ve learned, and (4) define and execute partnerships that move you closer to an exit.

More on this next time. In the meantime, additional information about 20/20 Outlook can be found at www.2020outlook.com.

Introducing 20/20 Outlook

Near the end of 2008 after laboring in high tech companies for over 30 years, it became clear that some personal reinvention was in order. Wide-ranging experience in a multitude of roles yielded a perspective that friends have described as unique, and I wanted to combine what I’d learned in three leadership areas – M&A, product strategy, and partnerships – into a process that would benefit small to medium organizations.

In my role as chief marketing officer at Infoglide Software, I’m fortunate to work for Mike Shultz, a talented and experienced serial CEO who has also become a trusted friend. When I told him about my desire to help multiple companies, he was immediately supportive and was key in crystallizing the idea of 20/20 Outlook. He even offered to let me develop and prove the system by applying it at Infoglide.

Earlier this year, the 20/20 Outlook process began to evolve. While the goal of aligning efforts across the organization to support an exit strategy was clear from the beginning, defining the steps of this new methodology took significant thought and interaction with the management team before it began falling into place. 20/20 Outlook will continue to evolve but has already proven to be quite valuable in its current state.

In future posts, I’ll share thoughts and ideas here about how the process works and how it can benefit other companies. I hope you’ll come along for the ride and join in the discussion!

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