If a company founder needed to have a $50 million business and was half-way there after 20 years at the helm, is it realistic s/he can expect to get there in 12 to 36 months? Has s/he sought an investment banker with industry, private equity or family office contacts that may consider a minority interest?
This effort achieves several things:
> It provides more capital to accelerate growth and allows the founder to pocket some liquidity while having a possible candidate to acquire the balance.
> It allows for a fresh set of eyes for existing and future challenges and opportunities the equity investor may have a deeper rolodex of relationships and knowledge than the founder.
> It may provide a degree of professional management to navigate scaling the business both organically and through acquisition.
The above example is one of the reasons it's good to know folks with a background in the private capital markets. They may assist existing financial, legal and tax advisors in positioning the company for the highest net proceeds.
And, if the banker does not know somebody who is a family business advisor, outreach in this realm is often a must. Why? About 50% of transactions go south before or near the 11th hour. This is after hundreds of hours of professional time and thousands of dollars in advice. Why? The emotional issues of the founder, family and firm may have been overlooked as most advisors are looking at their blocking and tackling roles. It's simply not just a transaction, it's a transition and wealth management is wholly different from successfully operating a company and the validation it provides.
So, why, as a Strategic Value Architect, do I believe the "growth" message gets diluted? First, it's a "future" thing. The daily noise of driving higher sales and profits defers the needed strategy execution and advisor alignment to ensure the level of resources exist to fill the "gaps" that drive value.
Keep in mind that a healthy benchmark will indicate where the company is right now and "why". As the why is addressed, the risks are reduced. Risk reduction translates into higher price multiples. The higher the price multiples, the greater the company value. Growing sales and profits alone is not enough.
Accelerated growth is like losing weight. Most look to shed all the pounds, but it's not the last pound that is the problem, it's the process of losing the first, the second, the third and so on. We love gratification, so we convince ourselves, the "no pain, no gain" is a myth and some out-of-the-box, deeply-discounted, software-driven report will provide the panacea. Hope is not a growth strategy.
Imagine seeing your doctor for an annual physical and entering into a computer all the "issues" you may feel need examination. The physician doesn't test you; s/he just generates a report based upon your inputs and what other patients have indicated are the symptoms and results. S/he prescribes some fixes and leaves you to seek these remedies.
Unless a trusted advisor has significant midmarket expertise in scaling a business from an operational, financial and human capital perspective, then as a minimum somebody that has been doing this kind of work for a decade-plus or a steward is needed. This person must be capable of managing a team to address all the facets and perspectives of those tasked with getting the business to the next level whether for liquidity, leverage or legacy purposes.
If you read the complementary first few chapters of my Wiley Finance book Equity Value Enhancement ("EVE"), you'll see I list several dozen trusted advisors who ought to be considered in helping a business owner get from "here" to "there". I also indicate what each does and how they perceive risk through their professional lens. Not surprisingly, these "constituents" are often not considered sufficiently in advance to make the real impact they could.
What are you doing next Tuesday on July 12, 2016 at 1:00PM PST/4:00 PM EST? If I had all the answers to the “why’s” of scaling a business, I'd be too busy counting money. Instead, we're hosting various webinars on growth perspectives. If you'd like to register for this interactive discussion click here.