We'll Learn from the 2016 Presidential Elections

Let's start with Millennials.  They know we have been embroiled in Middle East conflicts since 1990, (if national interests since before World War I are excluded).  No Millennials were directly exposed to a military draft, so few know the sacrifice of our families of those who volunteered and endured multiple deployments.

Millennials learned Boomers consume what wouldn't necessarily be called food.  They prefer organic and having bottled water as they knew the hazards of not being a steward of our environment. 

Yet, "clean energy" is often seen as code for limiting fossil fuel and coal production.  This often aligns with the loss of higher paying blue collar jobs as manufacturing also suffered from our global economy.  Clothing, electronics and furniture were produced overseas and returned in the form of cheaper goods benefitting those shopping at Walmart: The Peoples' Store.

Millennials know higher education costs have sky-rocketed while seeking opportunities allowing them to express individualism, not wanting "knowledge," not construction jobs their parents had. 

Unenviably Boomers are wedged between their adult children and their parents.  Some allowed their children to explore and find connection using tablets and phones, so the notion of "family" and "friends" is based upon "likes" not feelings.  Selfies andentertainment-based reality is often preferred to real activities. 

Fewer children, declining marriages and physical and emotional distance make healthy extended family maintenance more challenging which is compounded by infirmed parental care. 

Our social contract seems confused.  Few minded the trillions spent on military operations overseas while investment in our own citizens and national infrastructure continued to decline. 

Many were so intoxicated by first home and McMansion ownership with ready capital to spend on discretionary items and debt-laden investments until the credit merry-go-round skidded to a halt.  A large number of individuals lost their jobs and homes making any general economic recovery nothing close to the "borrowed" middle-class lifestyles until 2007 recession arrived.

Older boomers who may have benefitted from a decent retirement package sometimes express: "I got mine, you get yours" assuming the rules of the game have remained the same.  They, too, felt the pain of retirement accounts losing value through little fault of their own with safer investments still yielding a fraction of a percent. 

Let's put a finer point on the issue.  Many Boomers are confronted with the reality of being age 50- to 70-somethings with too little too late in their savings.  Some undoubtedly made poor choices in companions or careers.  They're confronted with the stark choices meanwhile about 20% are reasonably comfortable and gaining more due to steady work and wealth earnings. Because most want to be affluent, they often look to blame others seen as "inferior".

The history of the down-trodden is not limited to the United States or the 21st Century.  Hard work and climbing the economic ladder when most perceived there were rungs to a better life was the "square deal" most assumed was a basic right. 

Candidly, this is not so much a Democrat versus a Republican thing, but "I will not be ignored" thing.  Sadly, when confronted with little choices and less time, desperate folks take desperate measures.  It's the difference between evolution and revolution. 

Very few will look inward or stand before the mirror and think they had anything to do with their current plight.  Fewer still are heard when making "shared sacrifice" pleas for the common good, as they often know neither their trials nor tribulations.  This is why politicians and leadership are often mistrusted. 

Preservation of their positions makes leading by example hard at best.  So, a minority or a female leader creates disillusionment for some of somehow being lesser of a man.  This is why faith, family, flag and firearms can mean so much to so many.   

Find somebody who can harness the contrasts between "they" and "we" and they're provided a voice and a target. This provides power even when the promise and purpose seems suspect. 

Whether arriving at this tipping point is through desire or indifference, we shall see.  The remaining question, which also confronted our own founding fathers choosing a Republic versus a Monarchy for our fledgling nation as it is now 240 years hence will be: "Will absolute power build a bridge or a wall?"  

Sometimes it sucks to be right - IRS wins, business owners lose.

ate last year and the beginning of this year, I cautioned if there wasn’t improved quality control of business appraisals for gift and estate tax purposes, the U.S. Treasury would do what they did decades ago when Family Limited Partnerships were abused by enacting IRC Chapter 14.  They’d codify changes that ignore market realities that value is impacted by family owned assets and businesses.  Simply put, the investor concessions (‘discounts’) would be reduced or all-together disallowed.  So, driving down a $15 million net worth family to $10.9 million based upon the impairments associated with a family member holding an illiquid equity stake means taxes on the $4.1 million, which could mean and extra $1 million-plus.  And it goes up from there.  The hardest hit will be families with wealth of $20 million and above.

It’s 2012/2013 all over again.  There was concern that the lifetime exclusion would roll back to pre-Bush levels of $1 million.  Instead, this year with portability, a family can exclude $10.9 million from taxes.  That stills leaves 100,000+ individuals with businesses and real property worth north of the lifetime exclusion.  So, while the bonus of the 11-fold increase in tax savings occurs on the one hand to expect that discounts (especially those that are poorly supported) wouldn’t be curtailed is foolish at best.  Read the Wall Street Journal article here.

So, once again, we’ll have a crazy rush of gifting done before the proposed changes go into effect (and the outsized audits that follow for larger estates and poorly crafted appraisal reports).  Finally, it’s an election year and some proposals would return to the $3.5 million estate tax exclusion level of 2009 coupled with a $1 million gift with a 45% tax rate.  Add the possibility of the reduction or elimination of the above discounts and this means more advanced estate planning with consideration of liquidity, life-insurance and philanthropic options like at no other time during my 25-years focusing on tax, transfer, transition and trouble issues.

Because the 12 Things to Know When Selecting A Business Appraiser we shared last week was so well received, it is provided below.  Next email we’ll provide a link to the IRS’ manual for challenging discounts.

12 Things You Should Know Before Retaining An Appraiser

1.     Is business appraisal the practitioner’s full-time profession?  (Many are CPAs and Investment Bankers performing 5 or fewer reports per annum).

2.     How many business appraisals has the practitioner performed and years performing this work? (Should exceed 20 per annum and 5+ years of practice.)

3.     How many annual hours of continuing business appraisal education does the practitioner have? (Even better, how often does appraiser present and write on topic.)

4.     Is the appraiser willing to provide a sample report so client can make an informed decision?  (Would you buy a car, house or business without verification?)

5.     How many times has the appraiser defended his appraisal?  (Nothing sharpens work product than having it challenged and found well-supported.)

6.     What is the appraiser’s annual investment in data?  (In order to have mastery of industry and market, the investment commonly exceeds $40,000 per annum)

7.     Will the appraiser provide a not to exceed fee quote and a guaranteed completion date?  (Also, what is appraiser’s guarantee in defending the opined value.)

8.     The hourly rate is not the best measure of quality of product.  (If it takes 20 hours at $600 an hour or 40 hours at $400 an hour, which is “better”?)

9.     How much time and resources allocated to identifying and measuring risk?  (Most reports provide a paragraph; yet, pages are needed as risk is central to value.)

10.   How much time and intellectual rigor in measuring the impairments (“discounts” or investor concessions) associated with a non-controlling interest and illiquidity?

11.   Does the appraiser provide advisory services beyond appraisal work product?  (Company value is about managing risk, not simply revenue and profit growth.)

12.   What is the appraiser’s ability to capture and articulate intangible asset values?  (If appraiser cannot test assumptions with sanity check, value is suspect.)

Click here to read Carl's 2013 peer reviewed article, Raising the Bar.

Why scaling company size is so challenging...

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 above question, I'd be too busy counting money.  Instead, we're hosting various growth perspectives on webinars.   If you'd like to register for this interactive discussion click here.

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.

As an example, if the founder knew s/he needed to have a $50 million business and was half-way there with 20 years at the helm, would it be realistic s/he can expect to get there in 12 to 36 months?  Has s/he considered an investment banker with industry, private equity and/or family office contacts who might consider acquiring a minority interest? 

This 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.

This is one of the reasons it's good to know folks with a background in the private capital markets.  They may assist existing legal and tax advisors in prepping and positioning the company for the highest possible price and 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 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.  The reduction of risks translates into higher price multiples.  The higher the price multiples, the greater the company value.  Simply 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 answer we wish to hear. 

Imagine seeing your doctor for an annual physical and entering all the "issues" you may feel need examination into a computer.  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 your trusted advisor has significant midmarket expertise in scaling a business from an operational, financial and human capital perspective, then as a minimum you'll need somebody that has been doing this kind of work for a decade-plus or a steward who can manage a team to address all the multiple facets and perspectives of those tasked with getting the business to the next level whether for liquidity, leverage or legacy. 

RISK: Whose lens? Why it matters.

For Valuators:  We're retained to identify and measure risk and economic benefit.  In many cases, woefully inadequate documentation is provided to support company specific risk.  Yet, to determine an accurate value, we must provide more intellectual rigor and due diligence.  Examine most reports and you'll find financial assessment, but almost nothing concerning the influence of human capital.  And if equity value for a non-controlling interest is needed are the impairments ubiquitously referred to as "discounts" tied into the levels of risk (return = growth and income)?  The real opportunity in our profession is mastery of operational risks where we work with advisors and owners to manage and occasionally mitigate risks.  Thus, lowering the risk, increases company value.

For Owners:  If the smartest person in the room is not you, you're likely on your way to having a $10 million, $100 million or greater company.  You recognize you must leverage the relationships and knowledge that others offer.  This includes your advisors, clients, staff, family, board, association and suppliers.  A big hurdle is opting for the familiar faces due to the challenge of trusting others with the "beast" you birthed or gifted or acquired by you.  Somewhere, the skills of professional management will be needed to handle the dual roles of daily blocking and tackling versus ensuring long-term, value growth is achieved.  It is common to require a governance perspective to codify philosophies, principles and policies that make the company and family distinctly unique.  This is even more apparent when the family and business are intertwined while transitions are planned or disruptive to ensure significance is borne from success. 

For Attorneys:  What is the impact of dated agreements and bylaws or those legal document provisions that may not have been drafted or adhered to?  What is the influence of meeting minutes that are not prepared or no indication of key management decisions?  If an owner is not having an annual review of the company's risks with an attorney as the steward of same, it stands to reason the value of the company will be lower.  What owner wouldn't pay 50 to 1 return on investment?  Owners certainly do when insurance is purchased even when no claim is made.  Why would this differ for a general practitioner of law, trust & estate or transaction attorney?  Consider the alternative?  Would you rather pay an attorney much more due to an agreement dispute or a taxing authority audit?

For Accountants:  A seasoned CPA can do much more than save taxes.  In fact, if you're receiving large refunds you're giving Uncle Sam interest free money that ought to be working for you.  If the business owner has real estate, s/he may be able to accelerate depreciation through cost segregation, which lowers taxes.  If the CPA has a background as a CFO or is a Certified Management Accountant or offers business advisory services, s/he can also examine whether a company is highly or marginally profitableand why.  S/he may make recommendations on what is optimal amounts of accounts receivable, inventory, cash and debt to equity balance.  S/he may be able to determine whether sales and marketing expenses are having the desired impact and if labor, repairs and maintenance expenses are consistent with industry norms.  A business doesn't operate in a vacuum, so comparison against itself is an inadequate measure of risk.  Ask your CPA to "make", not report the news.

For Insurers:  Who better than insurance professionals to examine the health and vulnerability of both tangible and intangible assets ranging from cyber-threats to business interruption to a company vehicle involved in an accident to the disability or the death of a key officer and shareholder?  The presence of the right level and type of coverage at the most competitive fees that provides liquidity and options can move the value of a company by 50% or more. 

The list of trusted advisors are many.  I cover these different professionals in Equity Value Enhancement ("EVE").  RISK is the second "R" in the acronym of "GRRK" which stands for Governance, Relationships, Risks and Knowledge and represents how human capital and risk management must be considered in tandem with financial capital to pursue opportunity and differentiate a company and its offerings.  Done at the right time with professionals selected in the right way while working in alignment and applying the right framework and roadmap can increase company value by 100% or more in as few as six to 24 months.


For post readers who'd like to try "EVE" before they buy, they can request the first few book chapters here

Afraid of Vulnerability or Dependent on Validation?

Entrepreneurs fear the biggest risk is the one not taken.   Ours is often the avoidance of a bad selection, the opposite of which is validation for making a good one.  Opportunists see the glass half full.  Worriers see the glass half empty.  Realists think the glass could be half the size. 

Most professions offer products or services to minimize risks or enhance opportunities.  A valuation report reflects these risks and opportunities as they are.  But at what level(s)?

Interestingly, to solve for the “value” of a business, there are two parts that need to be determined. 

(1)  What is the economic benefit?  (Growth and income/cash flow); and

(2) What is the likelihood (risk) the economic benefit will occur or continue? 

While “risk” is the harder factor to identify and measure, +90% of most business valuation reports focus on the economic benefit.  Why?  Because valuations can often be formulaic instead of relying on deep due diligence and analysis.  Yet, courts and regulatory bodies expect a scientific approach (empiricism).   For the BV profession, this means mastery of finance as well as legal and operational issues. 

What’s the benefit to entrepreneurs?  The lower the risks for a company, the higher the price multiple.  The higher the price multiple, the higher the value.  If a company has $1 million in profits and higher risks, the price multiple might be 3x for a value of $3 million.   However, if the risks are lowered, the price multiple might be 5x for a value of $5 million – a $2 million difference.  If purchasing risk reduction services and/or products cost $200,000 to achieve the extra $2 million would the 10 to 1 investment be worthwhile?  The benefit to trusted advisors to solve for these risks should be evident.

If you’d like to discuss how to identify risk and influence equity value (up or down), please arrange an appointment by clicking here.  The Wiley Finance book Equity Value Enhancement (“EVE”) addresses Governance, Relationships, Risks and Knowledge (“GRRK”).  Over 100 of the 368 pages discusses these risks in detail.  Complimentary Chapter 3 provides summary of 29 risks found in 3,000+ engagements with an incidence of 80% or greater.   

Top 29 Operational Risks Found in 3,000Business Valuation Engagements (Frequency 80% or more often):  

  1. Meeting minutes are boilerplate (90%).
  2. No budget or forecasts (80%).
  3. No performance metrics/nominal knowledge of market/competitors (80%).
  4. No annual review of insurance (90%).
  5. No independent and regular independent and qualified valuation (95%).
  6. No business, marketing, or succession plans (90%).
  7. No strategy (90%).
  8. Nominal effort to cull clients (80%).
  9. No gain-sharing for innovation (90%).
  10. Culture is control oriented, siloed, and tactical (80%).
  11. Banking relationship is solely transactional (80%).
  12. Board comprised of family, inside directors, and friends (95%).
  13. Limited or no involvement in own or client industry associations (80%).
  14. Poor knowledge of balance sheet, P&L, or growth norms for industry (90%).
  15. No shareholder/key person/buy–sell agreements or not followed (80%).
  16. No risk assessments/SWOT analysis (80%).
  17. No review of education, experience, age, and health of key personnel (80%).
  18. Concentration of clients and vendors (80%).
  19. Little to no leverage of trusted advisors (90%).
  20. No independent advisory board (95%).
  21. Little leverage of human capital (knowledge and relationships) (90%).
  22. No effort to identify, protect, and/or leverage intangible assets (80%).
  23. Founder, management or advisors have reached capability (80%).
  24. No review to optimize capital structure (90%).
  25. No supply chain analysis (90%).
  26. Nominal cross-training of personnel (80%).
  27. Nominal redundancy of key functions (80%).
  28. Little or no training budget (80%).
  29. Underfunded or unfunded buy–sell agreement (80%).

If you're interested in why I wrote EVE or posts on Governance and Relationships, click on the below.  I welcome your thoughts on this or these posts and sharing is always appreciated.

Why I Wrote Equity Value Enhancement (Read Reviews Here)

Why is Private Company Governance So Elusive?

Relationship:  Mojo, Moxie or More?

Relationships: Mojo, Moxie or More?

Would you court your spouse the way you pursue prospects? 

How does your firm/you differentiate from competitors?  Before you answer - ask yourself “Do my competitors claim anything different?”   Now ask yourself what service/product do I provide?  If you answer is technical, tactical and/or transactional, how does that deepen your relationship if the client seldom has the capacity to differentiate? 

Do terms like “steward”, “servant-leader”, "connector" and/or “concierge” come to mind when clients/prospects seek a solution that does not center on what you’re offering?  I’d love to say I had an epiphany. Truth be told my discovery was fear based. Looking at that cold, hard truth in the mirror, I asked, “What is my relevance?” It couldn’t just be earning more.  It had to be something greater.

 As a business valuation professional, I learned identifying and measuring risk (core to determining value) was insufficient to differentiate.  So, I also offer risk management and mitigation services.  More importantly, I connect others also playing in their A-game even when no immediate benefit will be derived. So, my mojo isn’t solely what I know (30 years in), but who I know - local or national. 

Clearly, relationships are not simply ones you have with clients.  Could you imagine going to a bar looking for your future spouse and handing out your resume as justification that you’re Mr/Ms Right? This might be sufficient for a one night stand, but most people like to be courted. Not just superficially to make the sale. So, why would conducting business differ?

I have a simple test. How do you treat the assistant or receptionist when you call or visit? One can tell a great deal about a person by how they interact with support staff.

 So, as we discussed under the “G” for “GRRK” standing for Governance, the manner in which your company (its people) conducts itself is telling whether a culture exists that expects more than transactions. So, examine internal relationships. Is communication fluid and collegial?

How staff feels about where they work will influence how they interact with others external to the organization.  Would you want your key account staff (sales or customer service) to be transaction or relationship oriented? Does executive management go out of its way to meet with key clients to simply ask what their needs and aspirations are? Is there any distinction between servicing the top 10% of clients and the next 60%?

And a real test. Are suppliers, vendors, providers and advisors asked how you could improve your relationship with them? Are they asked what are some of the best practices they see when they visit competitors? They don’t have to reveal names, but what they see your competition do could be incorporated into the way your own firm is run.  All these "constituents" (stakeholders) are part of a greater ecosystem. So, are they then included when contemplating strategy or as an after-thought?

Another real test. As an advisor do you seek to meet with all the advisors with which your client and prospect works? As an owner/founder/executive do you hold routine meetings with banking, insurance, wealth, legal and tax advisors at the same time? If you see this as a cost and not an investment, what does this say about the confidence you have in the value they add?

So, the message her is simple, but its execution is not. The “R” in “GRRK” is about Relationships. If they’re an after-thought that is transaction-oriented, you have not differentiated. But what if you proactively build quality relationships within and external to the organizations with which you work? If they’re of high caliber (which means you are or striving to be), then they are unique to what you have to offer. That is a differentiation that has real mojo.

The only question that remains is "Do you have the patience and moxie to approach past, existing and future relationships as a way to develop rapport and assist in building value for others even when it may not immediately serve your own purposes?"

Isn’t that why courtship works (it’s not about just me, it’s about you…)?

Yes, I wrote Wiley Finance’s book Equity Value Enhancement (“EVE”) because I want you to buy the book and retain my firm’s services. The book’s emphasis is on leveraging BOTH Human and Financial Capital in order to supersize company and individual value. But, I pursue relationships with quality advisors and clients who are seeking more than just transactions.

I’m confident enough to stake my reputation and money that if there isn’t $850,000 or more in EVE's knowledge nuggets I’ll refund the $85.00 purchase price.  That’s a 10,000 to 1 return. Now, that’s value add and a differentiator!

Why is Private Company Governance Elusive?

The above question is a segment from Equity Value Enhancement ("EVE") - a Wiley Finance book ranked #1 by Amazonin its category that addresses the leveraging of both financial and human capital  while managing risk.  The first segments examined the differing optics of owners and trusted advisors. 

Governance is the next segment and is the letter "G" from the acronym "GRRK".  GRRK stands for Governance, Relationships, Risks and Knowledge.  These four areas are interrelated and believed to create more value as a sum of the parts when a holistic and aligned approach is applied.  EVE's premise is human capital is often overlooked by business owners and advisors as it takes a back seat to revenues and profits.  Human capital is not formally found on any financial statement and developing metrics are more difficult.  However, EVE shows, in fact, there are metrics and when well managed not only leads to increases in operating margins, but increases price multiples.  In turn, value is enhanced.  The following link explains why I wrote EVE.  

Most business owners first started with an idea and then executed with brute force, some cash and wishful thinking. By three to 12 months most of their dreams are nightmares. The next tier are those who created self-employment. If their compensation was applied to the salary of a manager, there is little to no profits remaining. Statistically most fail in a few years because profits are razor thin and there isn’t anything that differentiates from competitors. Yet, they work over 40 hours and often rely on other family. Mind you there is nothing wrong with a sole practitioner or a very small business.

The next tier is a high-five or lower six figure compensation ($75,000 - $125,000) founder with a solid reputation and/or a few key clients.   Growth is based upon the belief of selling more… smarter. Many deem employees and advisors as necessary expenses. If owners as clients are sufficient in quantity, providers can make a living at or near the levels of the owners they serve.

The “cut above” are the owners who earn enough to “put something away” and may see the need for advice on an event driven basis, such as needing a lease agreement reviewed by an attorney or financial statements audited by a CPA for a loan originated from a banker. These professionals may have general legal, accounting and banking knowledge. This tier tends to earn $125,000 to $250,000 with businesses reporting $2.5 to $5 million in sales. About three of four will close their doors either because there is no interest in trying to sell or no interest by most buyers looking to buy.

The $5 to $15 million annual sales companies have built some infrastructure because the owner simply cannot perform all the needed functions of the business. The owner may earn from $250,000 to $1.5 million in compensation.

However, if asked, most founders will indicate they can perform most or all of these functions as well as or better than the person(s) they employ. Many owners try to do so. As such, an advisory board aside from friends and family may be worthwhile to consider.

Because equity values can be in the millions, this is where gift and estate tax planning should occur; especially, when the owner has children or is over age 40 (sense of mortality and concentrated risk).  Yet, management turnover may be a challenge which can be based upon founder friction or compensation that may be noncompetitive. Outside advice is sometimes sought to assess, clarify, guide or mitigate decisions and outcomes.

These more complex advisory engagements are often 0.20% to 1.0% of company annual sales depending upon ability, complexity and/or scope. Again, like the companies themselves, advisors may find it difficult to express real differentiation. The involvement of allied professionals is often deemed on an “as needed basis” emphasizing cost versus benefit. While familiarity may grow with “key” advisors such as insurers, bankers, accountants and financial advisors, attorney and specialist retentions may be more situational dependent.

Arguably, it is this group, (depending upon sophistication, growth rate ad resources) and certainly $15 million and above, that would benefit from the “governance” discussion.

The next tier of $15 to $50 million in revenues tends to be about diversifying risk and seizing new opportunities either organically by new offerings and new markets or through acquisition. Few pursue the latter.   Key here is the depth of the company’s “bench” (key staff and advisors). A common Achilles heel is back office weakness where the CFO/controller may be performing more reporting functions and may have nominal private capital markets background to examine any option other than cash flow performance improvement, minimization of tax liability and use of debt. They may not know any investment bankers.

While it would behoove ownership to expend 1% of sales annually to ensure a reduction of “trees versus forest” myopia by seeking professional perspectives of outsiders, this is uncommon. The great majority of companies plateau at this point because bureaucracy becomes time consuming and ownership has reached their capability and may think delegation as giving up control. There is seldom a strategic focus because that suggests a degree of precision, planning and metrics that requires a step-back from the “let’s try this” method of managing. As long as pre-tax income is $1 million and above, these companies are candidates for a sale, but seldom at the price multiples and values wished for by ownership.

So, what removes the plateau of $50 million (respectable for sure)? A shared vision that incorporates those from within and outside the firm. This is the company’s “ecosystem” and the army of knowledge and action who are “constituents”. Their engagement is not an after-thought. Therefore, a “process” must become inherent to the way the company approaches its marketplace.  It is not only sales and profits driven, but offers a dynamic and differentiated approach to providing products and services. This requires a conscious and sustained effort to manage and maximize relationships, risks and knowledge.

So why is governance (strategy and vision development, communication and execution) so elusive? Only one out of 10 owners ever has had a business plan and fewer follow it. Mike Tyson wisely said “Everyone has a plan 'till they get punched in the mouth.”  So, given that most advice is reactive, ad hoc, tactical, technical and transactional, what are the odds of adherence to governance?

Keep in mind for simplicity sake governance is how decisions are made and how stakeholders are represented. The word suggests constraint and financial transparency, which are what most business owners will push back against. So, we’ll use terms like a holistic approach, strategy, vision, culture and innovation.  

What do all these and the acronym GRRK (Governance, Relationships, Risks and Knowledge) have in common? It’s the human capital within a company and between it and third parties (clients, vendors and advisors). Ask any Private Equity or Venture Capital Group what is among the first things they examine: Management strength, board capabilities and caliber of investors.

So Governance isn’t only about rules. It is how the founder/family’s/ management’s decisions get made and the vision gets executed. And the family business versus the business of family is a complex system.  Key is a “charter” and a committee, council and/or board that agrees to immutable principles that steer the company towards opportunities and away from activities that dilute the company’s purpose or place it at risk. This allows the company to become more dynamic as well as develop, sense and seize new opportunities. These companies influence the marketplace versus the marketplace solely influencing them.

Critical to governance is to develop a strategic framework and have executives, staff and/or advisors whose primary purpose is to be strategy stewards accountable for long-term outcomes. This is the role of a truly independent board – guiding the vision pursuit. The CEO creates a culture that supports the vision and its strategy execution. This limits disputes as well as increases trust and communication.

Yet, the common failure to implement is the investment seldom has immediate results. Because strategy implementation can take six to 24 months depending upon resource gaps and commitment limitations, few will suggest and fewer will entertain the process unless they wish to buck Einstein’s sentiment on insanity (doing the same thing over and over again and expecting different results).

I have seen company values double by making the investment. Isn’t that reason enough?  If the above is a compelling issue I invite you to consider requesting the first few chapters of EVE by visiting my website or Amazon.com to buy.

What is an Über advisor?

Even before the ubiquitous transportation disruptor UBER was formed, several seasoned colleagues and I formed our first Über Group in 2008.  I went on to form seven such groups. The “groups” comprised of 8 to 15 professionals with 20+ years of experience who were “connectors”.  A connector is a proactive role putting vetted quality advisors together with other advisors and clients.  More than just a “warm” referral, but one in which their gravitas is assured.  The professions had one degree of separation such as bankers, attorneys, accountants, insurance and wealth advisors. 

But what made these select few “Über”?  It was the fact they first saw themselves as client stewards and not solely through the lenses of their professional skills. Liken their activities to a concierge that anticipates issues and opportunities.  They provide unique, private assistance geared to the specific needs of a specific individual. They are the 21st Century version of “consigliores”.  While usually ascribed to the movie “The Godfather”, the meaning is counselor to leadership – “The mosttrusted advisor”. 

Similar to bank tellers being phased out by ATM’s, many financial advisors are being slowly replaced by automation – robo-advisors.  The wisdom is “rank and file” investors don’t need the human interaction as asset allocation to balance risk and reward can be performed by programs.  I can see it now.  The value of equities held declines by 15% and the investor dials a call center.  “Press One if you want to know what happened.  Press Two if you want to be told you’ll be okay….”  You get the idea.  I digress.

In a book I wrote, Equity Value Enhancement (“EVE”), I propose many professional advisors tend to unwittingly commoditize their services.  How?  They define themselves by what they do versus what their clients need.  This means their “optics” are tied to what they know and how they’re compensated.  This creates myopia.  As one can imagine a fee for service mindset often finds it difficult to articulate the difference in offerings from others.  If the claim is quality, timeliness and service (“relationship”), who among one’s competitors isn’t claiming the same?  This thinking is transactional, tactical and technical.  It is usually ad hoc and almost always reactive.

Differentiation is a bitch.  So unique (emphasis on cutting-edge, over-the-horizon, uncommon, data analytics) knowledge is a must.  This takes a degree of “what if?” and “what this might mean” intellectual rigor and due diligence most simply are unable or unwilling to expend.  That is still okay as long as you know who does know and are placing a prospect’s or client’s needs before fear of losing them to another. How does one know whether one has Über relationships?  Are advisors making, writing or reading the news?  Are they attending the conferences or are they the presenter or on the panel?  

So, why I wrote this missive and the 368 pages of EVE is to show both advisors and business owners just how much an impact an Über or “most trusted advisor” (“MTA”) has on managing risk and enhancing the value of both the advisors’ and their clients’ businesses.  This will be done in four parts using the acronym “GRRK” (pronounced “Greek”).  Part One will address Governance (Strategy, Culture, and Innovation).  Part Two will address Relationships.  Part Three will address Risks (almost half the book) and Part Four will address Knowledge. 

If you can’t wait for these four parts, you can go to www.carlsheeler.com and request a complimentary preview of the first few book chapters or order the book at www.amazon.com