The Sincere Delusion of a Strategic Quick Fix

Clinicians refer to Sincere Delusions as mental and emotional fixations where we buy into the idea that we can control an uncontrollable situation. We often harbor Sincere Delusions because they prevent an accurate realization as to the extent of our problems; in fact, we hold them so tightly that painful realization often won’t eradicate our delusional thinking. Eventually our delusions and our sincerity become fused. We begin, in essence, to believe our own lies.

Our company spots Sincere Delusions as we work with corporate leaders around the country, especially when the delusions relate to our clients’ belief in one of the most consistent strategic canards of all time – The Quick Fix. Entrepreneurs savor The Quick Fix. Their mantra: “I don’t need help, I just need this fixed.”

Well, my friend, if that’s what you want, I have the solution for your “this”. It’s the ultimate tool, a technical marvel that can fix literally anything. It can diagnose any problem, correct any malfunction, and mend any damage. It’s not cheap, but it works every time, and you can carry it in your pocket. It’s called The Sonic Screwdriver…

 

Cool, right?! All you have to do is point and shoot, and your problem is fixed. If you decide to get one, and need technical support, just call this guy; he’s used one for centuries…

 

The only downside, of course, is that there’s only one Sonic Screwdriver and it belongs to you know (Dr.) Who; which means it doesn’t exist, just like The Strategic Quick Fix. And we’re deluded, albeit sincerely, if we think the Quick Fix, or the Sonic Screwdriver, actually exist.

Entrepreneurs are amazing. They are the innovators and risk takers that change our lives. They live each day on the cliff’s edge, and spin more plates than a short order cook. They think they can’t slow down, if they do their “baby” might stall. It’s natural for them to want the quick fix. And so they remain sincerely deluded. They seek the operational bandaid or “Strategic Sonic” and hope to maintain momentum.

There are three Sincere Delusions of the Quick Fix that many Entrepreneur/Founders believe about their business strategy…

1. “Fixes are simple.”

What might appear as a simply defined operational issue is most often a complex problem that requires time, resources, domain expertise, and possibly additional capital to satisfy. Here are a few examples…

• A more accurate economic model to forecast effectively
• Channel conflict
• Capital to fund growth
• Performance based culture
• Profitability and cash flow
• Risk Management
• ROI on investments
• Prioritization and execution
• Leadership team alignment

2. “Anything is fixable.”

A few years back we helped the Founder of a $20 million service business affirm a problem that could not be fixed. The CFO of her company did not have the expertise to handle the financial challenges to scale her company. That wasn’t the problem, however. The problem was that her current CFO was also her best friend; a loyal compadre who had worked long hours for several years with a title in lieu of a salary to grow the company to its current status. There was nothing our client could do to “fix” her friend’s experience, and she needed higher tier help immediately. She couldn’t fix the problem; so she made a gut-wrenching decision and fired her friend. Some problems just aren’t fixable.

3. “All I need is a fix.”

There are two terms that are gaining prominence in the tsunami of “Big Data”: Apophenia and Patternicity. Apophenia is seeking patterns in random noise that don’t exist. Patternicity is finding patterns that do exist. After working with thousands of company executives over the past 20 years; we know that we have experienced both Apophenia and Patternicity as we’ve accumulated data and made assumptions on that data. Some of our assumptions are data-driven via survey with over 500 CEO/Founders and their leadership teams; but some come from interviews and interactions with these same individuals.

We believe that CEO/Founders of growth companies have a lonely job. The weight of the entire business sits on their shoulders. Often they get buried in the operations of the business and get pulled away from the thing they do best, that skill that fueled an idea into a business. They need more than an operational fix to scale their company, they need help from someone who’s been over their dusty trail; someone they trust that brings experience and expert advice when needed. That individual might be a Board Member, a mentor, or an outside trusted advisor.

Many Founders fear that the business might outgrow them, but they press ahead, heads down – feet moving, alone in their frantic effort to maintain momentum. The sincere delusion that they don’t need help might be the biggest reason that 90% of growing companies fail. The sooner these talented Starters get objective about their company and ask for advice, the sooner they will stop seeking the illusive “Screwdriver” and start beating the odds to scale their business.

And that’s a good thing because I doubt the Doctor would ever part with his Sonic.

The 2 Economy Hero Killers

I want to tell you upfront, and I don’t think I’m exaggerating when I say… that I am your greatest fan.  I’ve spent the last 7 years spending time one-on-one time with hundreds of your peers.  I know that you are America’s competitive advantage in the world’s economy.  I know you’re the source of over 85% of our country’s jobs, and almost all of our innovation.  You are the ninjas, the ones who take the risks that change our lives.  My partner, Doug Tatum, and I even created a title for you that we discuss in hushed and reverent tones to others – we call you Economy Heroes.

Here’s how I see you, the coolest people on the face of the planet; kind of a combination of MI6, The Matrix, and Dr. Who…

 

Now – that said – I’m going to put a serious burr under your saddle – I’m going tick you off; well not all of you. There’s about 10% of you that will nod in agreement with almost every point I make. These are the few of you that will not only embrace what I share, but you’re probably already taking steps to act on it.  This 10% will prevent a growth stall and scale their business.

I know from experience that I can’t scare you with statistics; although I’m fairly sure what I share will get your attention, for about 24 hours.  But I do know what keeps you awake at night – and that’s getting stuck in your growth; in other words, your company slowing into a growth stall.  When the top line stops moving up you start sweating.  After all, you’ve got employees now, right?  And you’re probably having trouble spending the time you need to spend doing what you do best, right?

So I say these things upfront so that as your feathers are ruffled, you’ll remember that I am your biggest fan and what I say is said in LUV!

First, and here we go, many if not most of you are suffering from two maladies – one internal and one external.   The external malady is easy, you’re buried in the “Tyranny of the Urgent”.  You spend most of the day with a firehose, dousing everything urgent (not necessarily important) that screams for your attention.  This tyrannical condition robs you of what you want most – to spend most of your time doing what you do best.  But you already know that.

What you probably don’t know, however, is the the fact that you’re probably “delusional”.  Clinicians refer to Sincere Delusions as mental and emotional fixations where we buy into the idea that we can control an uncontrollable situation. We often harbor Sincere Delusions because they prevent an accurate realization as to the extent of our problems; in fact, we hold them so tightly that painful realization often won’t eradicate our delusional thinking. Eventually our delusions and our sincerity become fused. We begin, in essence, to believe our own lies.

But here’s the good news – you’re in good company and IT’s NOT YOUR FAULT! No Man’s Land is an inevitable, unavoidable growth stage that every company must break through.

Our company spots Sincere Delusions as we work with corporate leaders around the country, especially when the delusions relate to our clients’ belief in one of the most consistent strategic canards of all time – The Quick Fix. Entrepreneurs savor The Quick Fix. Their mantra: “I don’t need help, I just need this fixed.”

Well, my friend, if that’s what you want, I have the solution for your “this”. It’s the ultimate tool, a technical marvel that can fix literally anything. It can diagnose any problem, correct any malfunction, and mend any damage. It’s not cheap, but it works every time, and you can carry it in your pocket. It’s called The Sonic Screwdriver…

Cool, right?! All you have to do is point and shoot, and your problem is fixed. If you decide to get one, and need technical support, just call this guy; he’s used one for centuries…

The only downside, of course, is that there’s only one Sonic Screwdriver and it belongs to you know (Dr.) Who; which means it doesn’t exist, just like The Strategic Quick Fix. And we’re deluded, albeit sincerely, if we think the Quick Fix, or the Sonic Screwdriver, actually exist.

As I said, you are amazing. You are the innovators and risk takers that change our lives. You live each day on the cliff’s edge, and spin more plates than a short order cook. You think you can’t slow down, if you do your “baby” might stall. It’s natural for you to want the quick fix. And so you remain sincerely deluded. You seek the operational bandaid or “Strategic Sonic” and hope to maintain momentum.

There are three Sincere Delusions of the Quick Fix that many Entrepreneur/Founders believe about their business strategy…

1. “Fixes are simple.”

What might appear as a simply defined operational issue is most often a complex problem that requires time, resources, domain expertise, and possibly additional capital to satisfy. Here are a few examples…

• A more accurate economic model to forecast effectively
• Channel conflict
• Capital to fund growth
• Performance based culture
• Profitability and cash flow
• Risk Management
• ROI on investments
• Prioritization and execution
• Leadership team alignment

2. “Anything is fixable.”

A few years back we helped the Founder of a $20 million service business affirm a problem that could not be fixed. The CFO of her company did not have the expertise to handle the financial challenges to scale her company. That wasn’t the problem, however. The problem was that her current CFO was also her best friend; a loyal compadre who had worked long hours for several years with a title in lieu of a salary to grow the company to its current status. There was nothing our client could do to “fix” her friend’s experience, and she needed higher tier help immediately. She couldn’t fix the problem; so she made a gut-wrenching decision and fired her friend. Some problems just aren’t fixable.

3. “All I need is a fix.”

There are two terms that are gaining prominence in the tsunami of “Big Data”: Apophenia and Patternicity. Apophenia is seeking patterns in random noise that don’t exist. Patternicity is finding patterns that do exist. After working with thousands of company executives over the past 20 years; we know that we have experienced both Apophenia and Patternicity as we’ve accumulated data and made assumptions on that data. Some of our assumptions are data-driven via survey with over 500 CEO/Founders and their leadership teams; but some come from interviews and interactions with these same individuals.

You have a lonely job. The weight of the entire business sits on your shoulders. Often you get buried in the operations of the business and get pulled away from the thing you do best, that skill that fueled an idea into a business. You need more than an operational fix to scale their company, You need help from someone who’s been over their dusty trail; someone you trust that brings experience and expert advice when needed. That individual might be a Board Member, a mentor, or an outside trusted advisor.

Many Founders fear that the business might outgrow them, but they press ahead, heads down – feet moving, alone in their frantic effort to maintain momentum. The sincere delusion that they don’t need help might be the biggest reason that 90% of growing companies fail. The sooner these talented Starters get objective about their company and ask for advice, the sooner they will stop seeking the illusive “Screwdriver” and start beating the odds to scale their business. And that’s a good thing because I doubt the Doctor would ever part with his Sonic.

So you’re probably delusional.  So what? So is almost every other CEO/Founder. It’s what you do with the facts about No Man’s Land that makes the difference whether you’ll end up like the 90% that stall, or the 10% that break through.

One way to get objective is to gain the right strategic intelligence, based on 25 years of field experience and research with thousands of emerging growth companies, so that you can make the right, next-step decisions.  You can do that; click on the image below and request a complimentary Benchmark Button report for your company.

You’re the Business-Man!

It’s true that some businesses must scale their financial model in order to achieve sustainable growth. Most Founders, however, swing for the home run because they can’t settle for anything less; and when financial scale is their only option, then a “stall” becomes their greatest fear. Each day jump-starts with “beat to quarters” and the frantic scramble to maintain top line momentum snuffs out any focus on profitability or strategic alignment.

On the one hand, it makes sense for Entrepreneurs to strive for the ultimate “Exit”. Private Equity continues its voracious hunt to distribute the unprecedented storehouse of dry powder that’s waiting find a target. On the other hand, why get caught in the whirlwind of “build and sell” when several long-term, less encumbered, and highly profitable options are available?

There are at least two exceptional alternatives for an Entrepreneur to consider other than financial scale:

1. The Small Giant

My friend Bo Burlingham wrote a fantastic book a few years ago and coined the phrase “Small Giant”. A Small Giant is often a regional, intimately managed, hands-0n, familial and PROFITABLE business. Take, for example, my favorite Small Giant, KATZ Deli. Whenever I’m in NYC I do my darndest to get to Houston Street and spend 1500 calories. This icon of the Big Apple, this Crown Prince of Corned Beef, this Pinnacle of Pastrami has created winding lines around the corner of Houston street for over 70 years:

My partner talked to the owner of KATZ and told him that a similar strategically placed deli in Buckhead, Georgia would create lines all the way down Peachtree Street. The owner responded that they had considered creating other locations, starting in other parts of NYC, but the water would have changed the flavor of the meat and that was unacceptable. What a perfect answer from the owner of a Small Giant. KATZ’s is immensely profitable and an icon of the community. But it will never become a scaled franchised business like Subway.

 

 

2. The Lifestyle Fastball

I have a friend who owns and runs a $100 million commercial development company in Florida. When I say he “runs” the company, I mean he IS the company. Outside of a few administrative support staff and one very talented junior partner who covers operations, my friend juggles between 25-30 short-term commercial deals at any given moment. He’s a master at his craft; like Nolan Ryan stepping up to the mound to throw a fastball. He’s kept this pace for over twenty years, and will probably continue until he’s 70. And why not? He loves the challenge of the business, staying innovative, and remaining highly profitable regardless of economic boom or bust.

The Lifestyle Fastball alternative is like working as a surgeon in the 1970s. In the 70s, before DRGs and standardization, the more surgeons worked, the more they made. Surgeons couldn’t stop working, their livelihood depended on their output, but that was fine because they loved their work as well as the status of their profession.

The Choice

Most PE firms today are far less interested in projections than they are with risk management. In the capital markets, it’s all about risk. So why not consider the risks of your business before you make the decision to scale? Are you set on (possibly) divesting your business so you can move on to something else; or retire early so you can spend your days on the links or on a European tour bus? Or would you enjoy staying in the same game, doing what you do best, with your hands on the wheel of what you can personally control?

If you choose the latter, then build a Small Giant or hurl your Fastball. Both are exceptional alternatives to financial scale; and by the way, you might have a heck of a lot more fun.

Not Enough Sandboxes to Scale the Kopi Luwak Value Proposition

My son sent this picture from his iPhone last year while visiting a coffee plantation in Indonesia:

When I saw this image, two things came to mind.   The first was this clip from one of my favorite movies, The Bucket List:

My second thought centered on another reality that many Entrepreneurs experience in No Man’s Land.  A friend responded after seeing my son’s picture with, “Did he find the sandbox yet?”  How can you scale production that requires hands-on accumulation of beans that successfully passed through the intestines of a mountain cat?  Answer- can’t happen.  Even though “The World’s Most Expensive Coffee” is one of the better Value Propositions I’ve heard in the past decade, you can’t build a scalable model to support it.  Bottom line – you can’t make more money with increased volumes – there just aren’t that many hungry exotic mountain felines to make it work.

Kopi Luwak provides a whimsical example of what many growing companies experience with their economic model, or lack thereof.  Many CEOs don’t ask the question, “Is our value proposition scalable, and can we make money at higher volumes”, until they’re mid-stream in No Man’s Land, and then it’s too late.  At that point, they stop drinking Kopi Luwak and start their mornings at 7 Eleven.

 

When CEOs Become Blind and Bored

Cover via Amazon

Psychologists refer to this as the paradox of power. The very traits that helped leaders accumulate control in the first place all but disappear once they rise to power. Instead of being polite, honest and outgoing, they become impulsive, reckless and rude. In some cases, these new habits can help a leader be more decisive and single-minded, or more likely to make choices that will be profitable regardless of their popularity. One recent study found that overconfident CEOs were more likely to pursue innovation and take their companies in new technological directions. Unchecked, however, these instincts can lead to a big fall.

The Power Trip, Wall Street Journal – August 14, 2010

And that’s the problem.  “New technological directions” are often a landmine waiting for the CEO’s foot.  Here’s the crazy part –  CEOs get crazy in No Man’s Land.  It’s a time of confusion and distraction, when the company is too big to be small and too small to be big.  After months, perhaps years of solid growth the company realizes they’re not quite sure why they’re in business.  The value proposition becomes ambiguous at best and the economic model, or lack there-of, does not enable the company to make money at higher volumes.  So what does the CEO do?  He or she gets bored with the details and starts innovating in a different direction.

When you, the CEO, feel like you’re losing control from Brent Sapp on Vimeo.

This is red line danger zone for corporate direction and strategy.  The idea that launched the business, that “thing” that the company did best to this point, starts to lose it’s appeal to the CEO.  In typical ADD (or ADHD) fashion the boss believes the best course of action is to get creative and do something different.  Landmine, three o’clock!  If you don’t believe me, listen to my friend Bill Wydra, CEO of Ash-Tec Technologies.

One of the reasons No Man’s Land claims so many ventures is the loss of the CEO’s tenacious focus.  Instead of a new idea, the leadership team should re-align on the value proposition and then refresh the economic model to scale the value proposition. This “re-focus” increases the probability that the company will survive No Man’s Land and thrive in more profitable revenue zones.

If you are a CEO and you’re becoming bored with your company’s direction, step back and re-focus.  Don’t let the illusion of past or present growth blind you to the reality of No Man’s Land.  Align the team on your value proposition and make the appropriate investments to maintain momentum and survive your growing pains.

If you need a hobby, try P90X – you’ll be too tired to be bored.

Firm First: The Shift from Loyalty to Performance

The CEO and their inner circle, those individuals who directly influence the company’s decisions, must put the firm first in order to create a performance based culture and break through to the second stage of growth.

Author Bo Burlingham makes a brilliant point in his book, Small Giants, concerning a decision all founders must make as soon as possible after launching their business. Founders must decide whether their company will become a regional, collegially managed venture (Small Giant), or it will scale. Burlingham uses data and case studies to describe how certain companies can choose to become “great” without getting big. Bo states that entrepreneurs can create highly profitable, immensely popular companies without scaling their model.

A Small Giant CEO can also allow the members of the leadership team to remain at the decision making table based on their loyalty to his ideas and to him.

Many emerging growth companies, however, must scale if they are to achieve the entrepreneur’s aspirations and build the economic model the company requires. For those companies the primary ticket to the inner circle, that handful of individuals who directly impact strategic decisions, must boil down to one criterion. The CEO and leadership team must shift in the second stage of growth from a culture based on loyalty to one based on performance. At that point the CEO and Inner Circle must put the firm first, above loyalty.

“Accountable people achieve results others only dream of…” Steve Keller, The ONE Thing

Team accountability is rare; but it is attainable. A simple Scoreboard that includes priorities, assigned action points with deadlines, and metrics will provide the catalyst for team interaction. Offering the team an opportunity to vote on the priorities and action points can also fuel accountability. As I stated in a previous post, we’ve documented that 92% of CEOs believe their teams agree with and can clearly communicate their strategy; while 2% of leadership teams can list the same priorities. Team accountability is rare because most second stage CEOs aren’t accustomed to creating a performance based culture, and don’t realize the degree of their team’s misalignment.

 

 

Companies entering No Man’s Land must transition from a culture based on loyalty to a performance based culture. Team accountability is a critical component of that transition.

Actions to help your inner circle to develop team accountability:

1. Allow the team to vote on on the company priorities and actions prior to the next team meeting. Send a request to the inner circle team members via email to vote on the company’s priorities, actions or both.

The 3 possible questions for priority voting are:

• Is this at top 5 priority?
• Is this clear enough to guide action?
• Are we doing the right things and achieving the right results?

A possible question for action point voting:

• Are we doing the right things to achieve the right results?

Voting results are valuable for:

• The initial Scoreboard Strategy Workshop discussion
• A re-calibration or affirmation of the team’s perspective after several prioritieshave been changed, or multiple action points have been added
• A monthly ritual as part of the meeting strategy meeting rhythm

2. Text reminders to the team about the upcoming meeting

3. Send a copy of the Scoreboard to the team members with comments about the previous meeting.

4. Contact specific team members to either encourage or provide tips on how to collaborate with other team members and possibly clear the path to complete their action points

5. Report on your interactions with team members at the next Scoreboard meeting

6. Have someone on the team create a “visual” for all employees to see that shows the PRIMARY Goal and Priorities that the leadership team is pursuing. Include a visual benchmark for the company’s “X to Y by when” objective and the current progress toward that goal. Here are a few samples of visuals:

• Trend lines (“from X to Y by ___”)
• Speedometer
• Bar Chart
• Andon (green to red)
• Personalized (use names and their numbers)

The Secret Ingredient to Accountability and Execution

There is a secret ingredient to successful team accountability and execution. It’s an essential element that must exist, combined with the 7 steps identified above, to develop an Execution Habit. It’s BELIEF.

 

The Inner Circle can’t just be people that work together; they must be a unified team in order to be accountable to one another and execute effectively. Your inner circle members sit at your board room table not only because they perform; they’re there because they believe. They must believe in the “why” of your product or service, and they must believe in each other. If they are not currently rowing in the same direction on strategy, and as I’ve stated in previous posts almost all teams aren’t in sync, then creating an Execution Habit with team accountability will help them get on the same page to get the right things done. They will learn how to participate in the execution process together. They will build confidence over time so that eventually they’ll help pave the path for each other to accomplish the PRIMARY Goal.

CEO/Founders: Don’t Dare Dance with the Moonwalking Bear

Let me make one thing clear up front Mr./Ms. Entrepreneur – I’m your biggest fan!

Several years ago I started the Economy Heroes Movement with the goal to recognize and support those individuals that take the risks, innovate, and create the jobs that change our lives.  I am convinced that Economy Heroes are America’s competitive advantage in the world economy.

That said, I ask you to keep an open mind as I offer some observations that could be considered by some as a “burr under the saddle.”  The fact is, I’m committed to your success and it’s essential that I help you to get radically objective.

Watch this 2 minute video:

The technical term is “Inattentive Blindness” as identified and defined by author Christopher Chabris in his researched-based book, The Invisible Gorilla. Inattentive Blindness is a fascinating phenomenon that occurs when we miss the obvious because – we don’t expect it; equally important, we’re not looking for it.

We’ve worked with hundreds of the fastest growing companies in the country since 2008. They’ve all experienced rapid growth, increased staff, and enjoyed momentum for a few years. The counter-intuitive subtitle to my partner’s best selling book, No Man’s Land, is “When Growing Companies Fail.” All growing companies, regardless of industry or even nationality, eventually hit a wall as hard as granite and treacherous as quicksand. These companies don’t see the wall coming until they hit it; even though the symptoms are dancing around them like the Moonwalking Bear. Do any of these feel familiar:

• The leadership team (inner circle) is out of sync on strategy
• The leadership team is not accountable for performance
• The leadership team members can’t articulate the same company Value Proposition
• The CEO/Founder does not delegate responsibility effectively
• The right (experienced) people are not in the right spots on the leadership team
• The leadership team struggles to prioritize and execute effectively
• The company doesn’t generate an adequate ROI in its investments
• The company lacks an efficient economic model to forecast decisions and financial performance
• The company does not manage risk effectively
• The company lacks adequate capital to fund growth

No Man’s Land is a universal, inevitable, unavoidable Moonwalking Bear.  No Man’s Land has been proven, especially over the past 25 years, to stall over 90% of fast growth companies – industry neutral. The No Man’s Land transitions are as close to business “truth” as it gets; and there are three critical steps to capitalizing on truth when it’s available:

Know the Truth

Truth is elusive only when it’s not sought.  You can know the truth of what you will inevitably face in No Man’s Land, if you want to know it.  But you must know it in order to break through it.  There are reasons that 90% of growing companies either stall or fail at this stage; and most of those reasons concern a lack of objectivity, self-awareness, and the willingness to learn.

Embrace the Truth

It’s one thing to know the truth, it’s an entirely different step to embrace the truth; to internalize the reality of your condition and recognize The Moonwalking Bear. The famous Stockdale Paradox as defined by author Jim Collins in his iconic book “Good to Great” tells the story of Admiral William Stockdale, the highest ranking POW in the Vietnam War, and his answer to the question, “How did you and your cellmates survive seven years in a concentration camp?”

I didn’t say anything for many minutes, and we continued the slow walk toward the faculty club, Stockdale limping and arc-swinging his stiff leg that had never fully recovered from repeated torture. Finally, after about a hundred meters of silence, I asked, “Who didn’t make it out?”

“Oh, that’s easy,” he said. “The optimists.”

“The optimists? I don’t understand,” I said, now completely confused, given what he’d said a hundred meters earlier.

“The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say,‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”

Another long pause, and more walking. Then he turned to me and said, “This is a very important lesson. You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

To this day, I carry a mental image of Stockdale admonishing the optimists: “We’re not getting out by Christmas; deal with it!”

The truth of No Man’s Land is not easy to embrace.  It takes emotional intelligence and humility to realize that your “baby”, that thing that has become an inextricable part of your ego and identity, may be “outgrowing” you and your ability to control it.  But it’s much better to embrace the truth than to slide down the fatal path of the optimist.

Act on the Truth

It takes guts, focus, common sense, and often external expertise to act on the truth of second stage growth issues.  Hard decisions, prioritization, effective resource allocation, accurate financial forecasting, and additional capital are in your future execution plan if you take steps to act on the truth.

Question: Are you dancing with the Bear, or setting a trap for it? If any of these symptoms sound familiar, seek help now, not later. Know the truth, Embrace the truth, and Act on the truth of No Man’s Land. Don’t let the bear sneak up on you.

The Exit Window: Are You Ready?

Much has been written about the unprecedented amount of capital, otherwise known as “Dry Powder”, currently under management by Private Equity firms. These firms are feverishly looking for the right deals to invest their ammunition. Over the past few years we’ve watched EBITDA floors drop and multiples rise as the window for these PE firms to invest their managed capital narrows.

A few years ago my firm was asked to conduct a break-out session on Exit Strategy for the “fastest growing companies in America” at the Inc. Magazine National Convention. We assembled a panel of Private Equity experts as well as former owners of a company who had recently completed a successful exit.

I was a bit surprised when the doors opened and over 250 company owners poured into our small room, filling every seat and most of the aisles. We made a short presentation then offered an open mic for questions. In our post-session debrief, we made two observations from our panel’s interaction with the company owners:

1. Exit Strategy is top of mind for many company owners – industry neutral
2. Company owners need help to prepare their company for a successful exit

My partner, Doug Tatum, makes an interesting observation about the primary motivation in the capital market…

The Money from The Benchmark Button on Vimeo.

Are you considering an acquisition for your company in the future? If so, is your company “Exit Ready”? Do you know how to reduce a PE firm’s perceived risk on your company so that you can eliminate due diligence barriers and take advantage of those unprecedented multiples?

You’re wrapping up Q4 2014 and preparing for launch into Q1 2015. What better time to get your partners in the same room and discuss these essential operational questions that cover the risk factors most Private Equity firms want to eliminate in their portfolio companies:

• Is our Leadership Team strategically aligned?
• Is our Leadership Team accountable to performance?
• Can our Leadership Team state the same, clear Value Proposition?
• Does our CEO delegate responsibility effectively?
• Does our company have the right executives, with the right experience, in the right positions?
• Does our Leadership Team prioritize, allocate resources, and execute effectively?
• Does our company utilize an effective and accurate Economic Model that enables us to forecast performance effectively?
• Can our company identify it’s greatest risk and do we manage that risk effectively?
• Does our company have adequate capital to fund growth going forward?

One of our local entrepreneurs, Peter McAlindon, Ph.D. founded a successful tech business in the gaming industry. A few years ago he presented a report to his Private Equity firm that answered the “risk” questions about his company. Here’s a quote from Dr. McAlindon that he offers to fellow entrepreneurs…

“The Private Equity firm said that they had never seen anything like The Benchmark Button report, and that it reduced their perceived risk of my company. I received the money I needed.”

If you want to sell your company now or in the future, and want to prepare the most profitable exit, then contact me for a complimentary Benchmark Button report (benchmark-button.com) for your company. Get Exit Ready so you can grab your share of the Dry Powder.

Brent Sapp, CEO Inc. Navigator, brent@incnav.com.

The 10 Things that the Top 10% of Companies do Best

I never ceased to be amazed that only 10% of growing companies break through the second-stage of growth and scale their business. It’s a failure epidemic that’s symptomatically consistent across all industries and, for that matter, all countries that embrace a capitalistic economy. The crazy cool statistic embedded in our field and academic experience is that the 10% of companies that survive No Man’s Land, a term coined in my partner’s best-selling book of the same title, generate over 85% of the jobs in this country.

 

Over the past two decades we’ve learned how growing companies fail, but we’ve also learned what the top 10% of businesses do best in order to break through No Man’s Land and scale. Here are the top 10 things that the top 10% of companies do best:

1. The Leadership Team is in Sync on Strategy

We’ve documented that over 92% of company leadership teams are misaligned on strategy, which prevents them from focusing on the right priorities. Often when we meet with a company’s CEO/Founder and inner circle to develop an execution plan, it’s the first time they’ve engaged in an exercise to get on the same page. Inner circle misalignment greatly inhibits effective resource allocation and performance. Top leadership teams know that change must occur and are not afraid to express their opinions. Their team members are in sync on their companies’ primary goal, top priorities, and KPIs.

2. The Leadership Team is Accountable to Performance

86% of companies lack a performance based culture. Most teams realize accountability is a problem, but they don’t know how to make the shift from loyalty to performance. Top companies realize that employee loyalty can start a business, but performance must become the primary measurement of success as a company grows.

3. The Leadership Team can State the Same (Clear) Value Proposition

Customers associate your company’s name with a clear, well defined value proposition so that they can turn to your firm first to fill its needs. Top leadership teams effectively articulate their unique competitive advantage. They understand that a clear value proposition enables the marketplace to decide that their deliverables are worth paying for, above and beyond their business’s cost structure.

4. The CEO/Founder Delegates All Non-Critical Decisions

CEO/Founders only have 100% of their time to offer their business. They must use that time for the highest value activities and appoint other people to do everything else. Top CEO/Founders identify their own strengths and protect them. Those strengths are often the core of the company’s success. Eventually, top companies become good at what the CEO/Founder does best. CEO/Founders spend the majority of their time performing their best use in the business. They delegate non-critical decisions in order for their companies to scale.

5. The Company has Placed the Right Executives in the Right Positions

Strategic hires and fires often need to occur at some point in a company’s growth. Top firms have top talent in leadership roles so they can become sophisticated organizations built around processes such as accounting, operations, human resources, sales, and marketing. Members of these inner circles have proven success in the same roles with companies at least twice the company’s current size.

6. The Leadership Team Prioritizes, Allocates Resources, and Executes Effectively

Top companies identify clear company priorities and assign specific actions to achieve those objectives. They have a trusted decision process that streamlines decision making and drives execution.

7. The Company Invests Resources Effectively

Top companies effectively allocate their physical and human capital to generate the greatest return. Their leadership teams create “what-if” ROI scenarios on potential investments – both tangible assets and potential hires.

8. The Company Utilizes an Effective and Accurate Economic Model

Top companies develop an economic model that projects forward and considers the return on capital deployed, the revenue produced by selling products or services to customers, and the changes these elements produce under different scenarios. The top 10% of companies have an economic model that proves the business will make more profit at higher volumes.

9. The Company Manages Its Risks Effectively

Top companies realize that risk is the primary reason businesses fail to raise capital. These top companies focus on reducing their real and perceived risk by addressing issues regarding the Market Alignment, the Management, and the Model.

10. The Company Has Adequate Capital to Grow

Growth requires capital. Companies often underestimate the amount of capital required to fund their infrastructure during growth transitions. They anticipate the implications of growth and don’t underestimate the amount of capital required to fund their infrastructure during growth transitions.

The First Step

We’ve determined that the best first step to beat the odds and break through No Man’s Land is the willingness of the CEO/Founder to become objective about his/her business on these critical growth issues.

If you would like a complimentary opportunity to generate unique intelligence about how your business stands concerning these growth issues compared to over 500 of your peers; as well as a competitive financial benchmark report from a database of over 35 million private companies, click on this link and request a code to take THE BENCHMARK BUTTON.

The Top 5 Execution Habits of Great Companies

After working with thousands of lower middle market companies over the past fifteen years we have observed that great companies possess something other companies lack: a leadership team that gets the right things done with effective execution habits. Harvard Business School Press states that over 90% of strategies fail. The authors describe in their study that “the ability to execute strategy was more important than the strategy itself.” Failure to execute not only lowers performance, it also prevents a company from breaking through a perilous growth inflection point. We call that point No Man’s Land.

No Man’s Land

According to David Thomson, author of Blueprint to a Billion, there are two inflection points where companies experience the greatest failure rate.

Companies enter No Man’s Land as they grow past startup and enter “adolescence”. Figure 1 depicts the disturbing fact that over 90% fail to survive No Man’s Land and achieve scale. It’s a period of strategic confusion and inadequate resources, as Doug Tatum describes:

No matter how good their core business concepts, the companies I’ve seen have been pushed by growth into an uncomfortable situation where the resources and approaches that had allowed the firm to grow in the first place suddenly became insufficient and even an obstacle to further growth. Customers went away dissatisfied, and the entrepreneur in question felt disoriented, as if he or she were gradually and inexplicably losing control.

In No Man’s Land, growing companies experience difficulties in four distinct managerial categories…

Market:

No Man’s Land market issues center around the relationship between company and client. Companies often find it difficult to identify their most profitable clients or the cost of acquiring a profitable customer. They also have a tendency to make promises to customers that they are only 70% able to keep:

It is so important to decide carefully which promises to extend to which customers. The correct decisions will keep you growing through No Man’s Land, while the wrong ones will kill you. An entrepreneur might make some promises that lead to stadiums full of new customers, whereas others might lead to dead ends, tangling up the company with promises meaningful to only a few clients or customers. The key is for you as the leader to make the right decisions that lead to a growing and profitable customer base. (No Man’s Land)

 

Market Issues

• Customer Satisfaction Gross Margin
• Product Commoditization Profitable Clients
• Profitable Products
• Customer Promises
• Cost of Customer Acquisition
• Innovation

Question: does your company have a clear and compelling Value Proposition that it can fulfill?

Management

It’s tough to make changes that involve replacing loyal staff; but CEOs must make strategic hires and fires when necessary to put the right people in the right positions. These experienced individuals will lead the company through No Man’s Land:

If someone tells entrepreneurs that they need to let a close friend go, they typically react defensively, acting as if it were somehow their own fault that things have gotten as bad as they have. They lose confidence in their own decision-making process. Yet entrepreneurs must realize that the transition to outside management is a normal progression; it has nothing to do with entrepreneurs or the particular people they’ve brought with them on the journey thus far. As a business changes, it requires people with different skill sets. The entrepreneur needs to match the people in charge with the skills the business needs; otherwise the business will fail… The Founder must hire at the top first, not the middle to navigate through No Man’s Land. (No Man’s Land)

Management Issues

• CEO Role
• Execution
• Reports
• Priorities
• Experience
• Agility
• Alignment
• Accountability
• Talent

Question: does your company have the right people in the right positions?

Model

One memorable Superbowl commercial a few years ago showed a young group of entrepreneurs throwing the virtual switch to open their online store. The first orders produced hoo-ahs and high fives; but when the order counter started spinning like a pinwheel in a hurricane, their smiles turned up side down. Many companies in No Man’s Land can’t make money at higher volumes:

To make it through No Man’s Land, firms must develop a new economic model that allows them to provide its value proposition at scale and earn a profit. In addition, the firm must constantly analyze its performance in light of this model to assure that the company will achieve sustained profitability. (No Man’s Land)

Model Issues

• Key Metrics
• New Products Infrastructure for Growth Profitability at Scale Systems
• Competition Strategy Forecasting Growth Initiatives

Question: Does your company’s financial model forecast decisions before you make them?

Money

Many rapid-growth companies roll in profits but have no cash on hand; worse, they have more cash going out than coming in. Private Equity firms are less interested in a company’s pro-formas than they are the company’s ability to reduce the risk on their investment.

Most companies enter No Man’s Land without enough capital to leave it. If and when they fail, “undercapitalization” is seen as the cause. Yet undercapitalization is not the cause but rather a fatal symptom. The true cause is a company’s inability to raise capital because it is perceived as too risky. To raise money, firms must focus on reducing their real and perceived risk by addressing the issues described in the previous three chapters. Yet even with the appropriate measures in place, transition through No Man’s Land is difficult because of institutional barriers that exist in the capital markets. Hang on—it’s going to be a wild ride. (No Man’s Land)

Money Issues:

• Capital
• Compensation
• Reducing Risk
• Forecasting
• Speed Limit
• Exit Strategy
• Value
• Capital Allocation
• ROI on Assets and People

Question: Do you know how to reduce your company’s greatest risk?

Teams out of sync on the No Man’s Land issues experience great difficulty getting the right things done. Great companies have teams that maintain effective execution habits so they can break through No Man’s Land.

The 5 Execution Habits of Great Companies

Habit 1: Get radically objective about the business

“Embrace the brutal facts,” as author, Jim Collins states. Great companies ask tough questions from the No Mans Land categories to get an accurate picture on the extent of team misalignment and the degree of urgency on each issue. Tough questions usually reveal tough decisions that must be made; decisions that stir the pudding but can also throttle the company through No Man’s Land.

Habit 2: Set a clear direction by focusing on a handful of priorities

More than 5 priorities result in no priorities. Strategy can be simple. Teams can focus and when they are responsible for a handful of priorities with actionable points and deadlines.

Habit 3: Align the team through routine communication

We have observed that over 98% of teams are out of sync on the No Man’s Land issues. On the other hand, companies experience at least a 20% increase in performance when teams are aligned and focused on the right priorities. Aligned teams can stay in sync with a routine review of priorities and key performance indicators.

Habit 4: Keep score to hold each other accountable

As stated previously, team accountability is rare; but it is at- tainable. A simple dashboard that includes priorities, assigned action points with deadlines, and metrics will provide the catalyst for team interaction. Offering the team an opportunity to vote on the priorities and action points can also fuel accountability.

Habit 5: Adapt and learn quickly

Our nation’s Special Forces utilize the same strategic decision process on every battlefield around the world. The foundation of their strategy is based on the team’s ability to make a decision and then quickly learn from their unfolding circumstances, outside information, and the evolving interaction with their environment. By using this process the team adapts and learns in order to choose their next move. In other words, they remain “agile” at all times. The Wall Street Journal described the need or a company to remain flexible:

Now, even though the economy is slowly picking up, those fresh habits aren’t fading. “This downturn has changed the way we will think about our business for many years to come,” says Steve Odland, Office Depot’s chairman and chief executive.

Walt Shill, head of the North American management consulting practice for Accenture Ltd., is even more blunt: “Strategy, as we knew it, is dead,” he contends. “Corporate clients decided that increased flexibility and accelerated decision making are much more important than simply predicting the future.”

From: Strategic Plans Lose Favor, Wall Street Journal, 1.25.10

Great companies have leadership teams that adapt and learn from their decisions. They are able to keep their strategy simple and remain focused on the top handful of priorities. They’ve developed the habits to execute.