Private Equity Growth Indicators

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A current theme that continues to occupy my interest is how private equity/venture and angel investors view businesses and judge CEO’s. In a recent post, I discussed a Stanford Business Graduate School study “How Do Venture Capitalists Make Decisions?” that showed that venture capitalists who are considering investing in entrepreneurial ventures, are most interested in entrepreneurs who are passionate, capable, experienced, and part of a strong team.

In this particular article in the Sales Benchmark Index Blog earlier this month, Matt Sharrers discusses the growth indicators a private equity firm expects. He points out that the end of first quarter is an ideal time for private equity firms to check each of their portfolio company’s growth rates, including sales and marketing performance.

According to Sharrers, private equity firms are most interested in implementing an agile sales and marketing strategy focused on results. Q1 is a decision making time to validate prior assumptions as well as the actual results, and most importantly make new decisions as necessary.

Leading indicators include whether sales and marketing are working in lock step and whether sales and marketing are enabled to hit their growth milestones.

Of course, private equity firms are very wary of red flags that exclude win/loss analyses, provide inaccurate market feedback, and show a lack of confidence in Q2 forecasts.

In particular, the CEO must demonstrate that sales and marketing are always in alignment, and there is always a clear plan to execute strategy and do it quickly. As I have often said, the CEO’s job is to provide value for the business, and you can rest assured that the job of the private equity firm is to ensure that value is being achieved.

What kind of CEO do you want to become?

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As many of you know from my previous posts, I often comment on Adam Bryant’s pieces in the New York Sunday Times column, The Corner Office. I read the column weekly because I am fascinated by what drives business owners to become CEO’s, how and when and why did they become a CEO, what are their opinions, what are their management styles, how do they think, how and why and what types of people do they hire, and what are the trends they follow.

I was particularly intrigued with the headline of this piece about Tien Tzuo, founder and chief executive of Zuora, a software company for subscription businesses which was, “Don’t Expect Me to Manage You.”

Obviously, every CEO has a different style and approach. Mr. Tzuo prefers being a leader, not a manager, and expects his employees to manage him. He says, ‘Don’t expect me to manage you. You have to manage me.” And, he doesn’t do performance reviews. “What I found was the one-on-ones just became this laundry list of issues. And I want most of the issues exposed in a team environment, because most of these things have to be worked out in a group setting.” He believes that if his team members want feedback, they have to ask for it, and then he’ll give them as much as they ask for!

I have to say I find Mr. Tzuo’s approach fascinating, and I’m not sure his leadership and management style is for me, nor can I, nor do I recommend that approach to my clients. I believe that a CEO must lead by example, and I also believe that the CEO needs to seek out his team members as much as they need to seek him or her out. Leadership and/or management is not a one way street.

I am always interested in what my readers think . What kind of CEO are you? What kind of CEO do you want to become? What kind of CEO do you want to work for? Please forward me your comments.

How Do Venture Capitalists Make Decisions?

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The other day I came across one of my favorite newsletters from The Stanford Business Graduate School, and in particular the subject line “Do Funders Care More About Your Team, Your Idea, or Your Passion?” intrigued me to read on.

In a study co-authored by Stanford finance professor Ilya A. Strebulaev, “How Do Venture Capitalists Make Decisions?” The findings seem to indicate that Venture Capitalists who are considering investing in entrepreneurial ventures, are most interested in entrepreneurs who are passionate, capable, experienced, and part of a strong team.

The survey included 885 Venture Capital professionals at 681 firms, and asked the VCs to identify the factors that drove their investment selection decisions and ranked them according to importance. The abilities of a founder and his/her management team are the most important factors driving investment decisions, and even more important than the product or technology itself.

The average investor evaluates 200 companies a year and invests in just four. Each deal takes an average of 83 days to put together, which includes 118 hours of due diligence and Strebulaev says that “Venture Capitalists gauge an entrepreneur’s passion level by their commitment of time, effort, and money to their idea. “

The study was structured in a way that enabled researchers to better understand how different types of venture capital investors approach their decisions. They found that information technology investors tend to be interested in an entrepreneur’s management team, while health sector investors are more interested in products and market forces.

If indeed you have the time, I strongly recommend downloading the complete study HERE.

As usual, please email me your thoughts and comments. I guarantee you a response!

What is Fun at Work?

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Shreya Gupta

 

I was perusing through the Sunday NY Times, Business section a few weeks ago and I was intrigued with the headline, “At Work, Focus on the Fun”.

(Read full article here

Reading past the headline, I once again read the statistic from a recent Gallup poll that two of three working Americans do not feel engaged at work.

Actually, I can relate to that statistic as I experienced that for a considerable period of my early work experience. And then something happened – I started my own Company with a partner, and my life and my work was never the same again.

What was it that made the difference? I think it was that I found what I did was not only challenging, but also incredibly interesting, and inevitably fun.

So what is fun at work? In my opinion, it is believing that what you do does make a difference, and that being fully engaged in the process of whatever you do does matter, and seeing the impact of your efforts, despite everything that can and does get in the way, can indeed be the difference of having fun at work.

The article makes some interesting points on how to make work fun:

  • Making friends and establishing comradery with coworkers
  • Breaking the routine
  • Shifting one’s mindset to focus on the positives of one’s jobs instead of the negatives
  • Making one’s goal the process of doing the job and completing all the necessary tasks

Most importantly, I agree with the statement in this article, “…that people feel energized when the process of doing something becomes the goal of doing it”. For me, I found this very satisfying and inevitably have made work more fun for me.

Once again, Veronica Rao was helpful in my gathering my thoughts to write this piece. And, as always, I do appreciate your comments and feedback.

CEOs Set the Tone

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As you probably know by now having read my posts in the past, I am fascinated about how business people become CEO’s, and what they must focus on if they are to succeed at doing their job.

The other day, I was reading Adam Bryant’s Corner Office column in the New York Times, (read article here) and I really resonated with Blake Irving’s (CEO of GoDaddy) comment that “…when you’re the C.E.O., you get to set a tone from your seat that’s different than if you’re working within an organization. That ability — to actually shape the culture, talk about the things we’re going to do, how we’re going to treat each other, what we want our values to be — is different. I didn’t realize it until I was in the seat.”

Creating a culture that motivates, and inspires people to drive the business forward may be equally critical to driving revenue if the CEO is going to be successful in increasing the value of the business, which should be the goal of every CEO.

As always, I look forward to receiving your thoughts and comments.

97+ Experts on Driving Small Business Growth

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Check out my article “Growth Means Turning an Entrepreneur Into a CEO”  alongside dozens of other expert contributors in Recalculating 97+ Experts on Driving Small Business Growth.  We were each asked to write special 1000-word contributions for the book based on our expertise.  Topics covered are: Leadership, Finance, Marketing and Sales, Human Capital, Operations and Technology.

You can purchase the book on Amazon in either Paperback or the Kindle edition HERE.

As I have often said in my talks, and as I conclude in my article, ” In my experience with hundreds of clients, I’ve found that whether one chooses or not to grow the business, the principles of systematizing, being deterministic, and increasing value for the business still hold true for any business, and becoming a CEO may not be a choice after all.”

I look forward to hearing your thoughts.

 

The Long and Winding Road

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Jon Reinfurt

As many of you know, I often talk about small business owners becoming CEO’s, so I was quite intrigued when I saw this article in last week’s Sunday New York Times Business Section (read full article here) focused on what it takes for a young person starting his or her career to eventually become a CEO in the corporate arena. In particular, I wanted to see if the long and winding road to the CEO’s job in the corporate world was all that different than the long and winding road to the CEO’s job in the world of small business.

No one doubts that hard work, brains, leadership ability and luck are key factors for climbing the corporate ladder, but new evidence shows having experience in as many business’s functional areas as possible and building relationships within an industry may now be just as important.

Data from a new study by LinkedIn of almost a half million onetime management consultants showed that experience in one additional functional area improved a person’s odds of becoming a senior executive as much as three years of extra experience. Burning Glass, a firm that scours millions of job listings to determine labor market trends, found a surge in demand for hybrid jobs, that incorporate expertise in different fields such as both technology and finance.

If as as Guy Berger, an economist at LinkedIn says that to be a C.E.O. or other top executive, “You need to understand how the different parts of a company work and how they interact with each other and understand how other people do their job”, then indeed the same is just as true for a small business owner who wants to become a CEO. There really is no difference!

I urge you to read the full article and let me know what you think.

Strategies for Success in Personal and Business Planning

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Michael Gansl and Michael Korn provide precious insights on how business owners can make plans in order to attain their financial and personal goals through organization, making choices and increasing value.

Organize:

Manage and Systematize

Make Choices:

Be Protectionistic and Derministic

Increase Value:

Build Personal Wealth and Business Value

 

 

Is Wanting to be a CEO a “Stupid” Ambition?

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The other day I came across this article in Insights Stanford Business (Link here), and was quite intrigued by the title: “CEO: Refocus Your Ambitions”, and especially the subtitle: Why the CEO role can be a “stupid ambition”.
 
Well, it certainly caught my interest, because the tag line of my business, Voice of Reason Consulting, is that “We turn business owners into CEO’s”, and I can’t imagine why becoming a CEO is a stupid ambition.
 
So, I read on to see if I could understand what Paul Polman, CEO of Unilever was trying to say. (Link here)
Bottom line I agree with Mr. Polman’s statements that “People’s self worth should not be measured by net worth” and that “You need to have something where you want to have an impact and that aligns with your values. It will drive your passion.”
 
However, I firmly believe that any business owner who is invested in their business and is intent on growing their business must focus on 3 basic tenets: systematizing the business; being deterministic about the business: and ultimately increasing the value of the business. I would never call this a “stupid ambition”.
 
I welcome your comments.

Life Style Business vs A Business Poised for Growth – Which Would You Choose?

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If you’re thinking of increasing the value of your business, I believe that first and foremost, you need to know what type of business you want to be. Do you want a lifestyle business or one that is poised for growth?

In a lifestyle business, all the profits go into the business owner’s pockets. In a business poised for growth, most of the profits go into growing the business – systems and people.

If it’s growth, are you ready to deal with growing Accounts Receivables, Payables, Payroll, Employees, etc., etc. Growth requires hiring and firing people, training employees, developing a managerial level, developing vital and actionable executable business plans at every stage of growth. Growth may also require a significant financial investment or several investments over time – from whom – You? Private or public outside equity investors such as angel investors, venture capitalists? Bank debt? or both? Or growth may even require partners – silent or working?

If it’s a life style business, can you stay competitive in your marketplace without growing? Can you maintain the status quo in a changing marketplace? Do you have a book of business that a buyer will value and pay you for your past efforts? Be aware that buyers are paying for the future – their future with what was once your business.

Whether you have a life style business or one that is poised for growth, do you have a business plan in place? It can be an annual plan or one that is projected several years out. Does it include both your personal and company’s goals, your core values, how you will grow revenues, sales, marketing, finance, accounting? Is it a flexible plan? Can you change or pivot quickly if necessary?

Since business is never easy, since so many business do not succeed over time, it is truly critical to know which type of business you want to be when you grow up!