Archives for April 2014

An Entrepreneur’s Lesson: Ditch the Data Room

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I don’t think I remember anything pleasant growing up and thinking about Homework.  Or Medicine.  Or Doctor Visits.

The entrepreneurial equivalent of Homework is a fancy term called “Due Diligence” (DD).  Think of it as homework on steroids, where $’s, jobs and cultures are all on the line when a business acquisition is taken place.  It typically happens after signing a Letter of Intent (LOI) to purchase the business, for a defined period of time, say 90 days.  

Chances are, if this business is bigger than “Mom & Pop” (say greater than a couple million in revenue), you may have access to a “Data Room.”  The Data Room should have plenty of info to do your homework on the business:

  • Financial statements, Tax records
  • Legal documentation
  • Marketing/Sales Collateral
  • Employee records, policies, grievances
  • Hard assets, including property, equipment, building info
  • Management reports:  Sales trends, costing info, customer info, suppliers, etc.

Exhaust the data room, know the info cold and keep your notebook of key questions and insights.  More importantly, give other trusted advisors access to it, you can’t catch everything in there.  Something will be viewed through a different lens, and you need that additional insight.

Then the most important lesson of them all?

Ditch the Data Room.  Quickly.  

A former colleague I had the privilege of working with had a favorite saying:

If you want to know how the lion lives, don't go to the zoo, go to the jungle.

The jungle is where the value is currently created in a business.  

It’s also the springboard, or quick sand for future value creation.

It is nearly impossible to understand a business by populating a data room with “Culture.”  By definition, culture is hard to put your finger on, but it means everything.

A toxic culture will swallow any value creation plan.  Develop a strategy early for unwinding the culture.  A few pieces I’ve written on Culture.  

The biggest challenge with assessing the culture?  It can’t happen by a simple “walk through” the operation.  You need to be imbedded, as if you worked there, so find a way to “get on the inside” as quick as possible.  

I would build into your Letter of Intent that you need at least 4 weeks inside access to the business as part of your DD, as the last and final step, and as a springboard to hit the ground running after close.  

Most owners will be hesitant here.  Stand firm anyway.  If you need to make concessions, concede the post time transition support.  If you can’t gain formal inside access as part of DD for at least a week, what does THAT say about what you are buying?  

It IS customary to have owner transition support for extended periods of time AFTER close.  The problem with this is obvious:

  1. The money is already spent.  Your investment thesis will likely change AFTER you get in the jungle.  Surprises alter ROI.
  2. What perspective will existing ownership lend AFTER the close?  THEIR perspective.  What THEY know, has already produced what’s already in the data room.

What matters is how NEW leadership will impact (good, bad) an existing culture.  The unknown for the entrepreneur is not their own leadership style, it’s the company and culture they will be inheriting.  Existing employees hold the keys to unlocking those unknowns.

On the “inside” means exactly that.  You are essentially parked inside the business, all day, full working hours.  It’s not complicated, but you need to do some basics…..

  • Invest in personal rapport first.  Get to know THEM, and start to establish trust.
  • Find the opinion leaders, connectors and people that know how the place runs, where the skeletons/challenges may be, how the morale meter registers.
  • Make sure you are listening 2x’s more than your talking.
  • Customer meetings and trade shows are the best way to go to get a feel for the “whys” behind the revenue line, so take advantage of all of those opportunities.

In short, you’re trying to find the “WHYs” behind the WHATs you learned from the data room.  Then, you’re developing your plan for the future.  Part of that plan is confronting the realities of the culture, and eliminating surprises. 

Business is fraught with opportunities to get caught up in Paralysis by Analysis.  If you’re going to be paralyzed by analysis, make sure you’re sitting in the jungle, NOT the data room.

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HUSTLE or BUST: Not Just a Blog Name Anymore!

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Sometimes the walk up to the starting line takes a while….4+ months that started with a series of exploratory conversations with some accomplished pro’s turned into an acquisition of a Food Company.

Buying a business is a bit like training for a marathon.  Lots of preparation, long runs, and the lead up to a massive test of endurance.  Not an easy process, and one that requires skill, and like most things in business, a great team is critical.  

I have been privileged to work with a great Private Equity team that worked tirelessly on the deal and will continue to add value over the years ahead.  In life, who you surround yourself with is one of the life’s greatest difference makers, and the team I worked with are nothing short of life’s A-Players.  Can’t say enough good things about my partners at Salt Creek Capital.

With this acquisition comes a series of life events

  • Moving back home to NJ after 8+ great years in Memphis
  • A transition of company and roles:  From CMO of Monogram Foods, to the new role of President/CEO for a niche manufacturing company.
    • More to follow on specifics and how this business will continue to do great things and new things in months ahead….

What else comes with acquiring a business and assuming the top role?

RISK.  Putting your name and every financial resource you have on the line.  The banks call it a Personal Guarantee (of the debt).

Over a year ago I started Hustle or Bust.  I loved the name, and it came to me quickly.  

If forced to describe my career, and maybe life in ONE word, HUSTLE would be that word.

Hustle is 100% controllable, it’s a choice.  I’ve always believed that you either Hustle, or BUST.  Unless you’re an absolute genius, lucky, or born with a silver spoon, Hustle is mandatory.

Now for the BUST part:  Back to guaranteeing debt, RISK.

First, RISK is present in everyday life whether you sign your name to it or not.  It’s why we have emergency funds.

What’s the worst thing that can happen to someone in a job?  You get fired.

That’s risk, you just didn’t sign your name to it.  It happens to very talented people, sometimes without cause.

Is risk scary?  Yes.  Is it manageable?  Usually.  

Becoming an entrepreneur is not for everyone.  When you sign personal guarantees you are basically saying that you are comfortable with the worst possible financial outcome.  Not many can stomach that kind of risk.

Life and careers are about a series of choices.  Weighing the scales of what is important, understanding risk, and how that risk compares to reward.  And a host of intangibles always factor into the process.

Today marks a turning point in this blog.  When a life event or transition happens, it fundamentally changes your point of view, outlook and perspective on things.  Having the good fortune to lead a company, the responsibility, risk and opportunity to build something great……I would say that qualifies as a defining “life event” that is sure to change my outlook and view on the world.  

I hope you join me on this journey and share your insights and comments as well.

Here’s wishing all of you success on YOUR journey.

Life is short.  May you always live each day with HUSTLE…..or Bust.

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The Killer B’s in Business

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Excuse the bluntness of the following HUSTLE PRINCIPLE:


The killer b's

Balls:  That intangible that says someone…

  • Is comfortable with smart risk in business.  Calculating.  Knows the max  downside, upside and can balance the scales.
  • Recognizes that conflict can be uncomfortable, naturally avoided with people, so they will ask tough, uncomfortable questions that get at the heart of the matter, and do it in a way that does not erode people’s self-esteem.  Does not discriminate with management level…..will embrace conflict with higher level management as well as sideways and lower.
  • Doesn’t let grass grow under their feet, ignore problems or letting the spiral out of control.  Said differently, values time, speed and action.

Brains:  That intangible that says someone

  • Understands how businesses work.  From how a sale happens (order)… the cash that results, and if the accumulation of all those sales is enough to create a successful (profitable) business…..and everything in between.
  • The “in between” the top line and bottom line matters massively, because plenty can go right or wrong, and requires people working together and solving problems.
  • People tend to be the complicated area, and most important.  See the points on Balls.

The Killer B’s BOTH need to be present to achieve real results.  Rarely will you find equal combinations in any one person, so teamwork is critical.

If you believe that the Killer B’s matter in business, use it as a measuring stick.

New Talent:

  • Score them on a scale of 1 to 10.  One = no demonstrated trait.  10 is “couldn’t imagine anyone demonstrating MORE.
  • Look for real examples.  Concrete, specific, multiple.
  • Don’t get distracted by titles and brand names, look for characteristics.
  • Look for RUNWAY:  How likely are their Killer B scores able to improve in the future with a new environment and new mentoring?  Score this and call it your “Headroom index” or anything that makes sense.

Existing Talent

  • Everyone can improve their Killer B factor, but it’s the leader’s role to create conversations, set the bar higher and help train and motivate people to get better.
  • Ask them to evaluate themselves, areas they are strong at and areas they can get better.  See if their self-evaluation agrees with yours.
  • Agree.  Disagree.  Discuss.  Repeat.  Gain commitment.  Follow up.

All painfully easy to say, but harder to execute and requires discipline.

Also, keep in mind that the market for talent (new and existing) tends to reward CURRENT scores on any characteristic greater than likelihood for future growth.  Why?  It’s easier.

Every leader has their own version of the “Killer B’s.”  What is important is not so much “What” your version is, but how you lead, and work against your own success principles over time.

I’d love to hear your comments on the Killer B’s or your own version of success principles……Leave your comments below!

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