How to Sell an SME Business

Lately, I have seen some poor examples of how and when to sell a small to medium (SME) sized business. No names, no pack drill.

Let's face it, if the owners want to take off and run you get to see some pretty shoddy tactics to satisfy their own demands. Meanwhile, you see some people who have nurtured their baby with loving care reluctantly part with it only to see their protege get raked over by the new owner. In the middle lie the staff, customers and suppliers who often are the last to be considered.
I could go on and on about examples I, or we, have all seen, but suffice to say the common theme in bad examples is lack of honesty and communication while in the good it is attention to detail and good management practice.

So if you are thinking of selling your business, firstly get some sound advice and then question yourself as to whether it is the best for the shareholders, the staff and the future. In terms of valuation, timing is one of the most important factors. So many businesses have missed their opportunity for holding on through the good times and selling in the downturn while others got lucky and quit at the top. Oh, the names we could dredge up but just think of Skype and Barings and you will know what I mean.

A few tips then:

• Keep your staff motivated. The moment you decide to sell, staff will see an attitude change so it's as well that they are a) consistently managed and b) involved in the decision-making. That's a complete anathema to most business owners but imagine the value to a would-be buyer of inheriting good, well motivated staff.


• Keep cash in your business. Run your business on debt and have low cash, you will get nobbled on valuations. Keep investing as every pound in could mean several more on valuations if the business is set for the future rather than just a quick buck sale. It isn't rocket science. Avoid paying yourself over the odds early even if the temptation is there as it shows at valuation and will get discounted for sure.


• Be honest and open. When you sell you are going to have to give some pretty hairy warranties and undertakings about how your business has been run. You had better make sure those skeletons in the closet don't come back to haunt you as it is getting harder to simply walk away from problems and keep a high valuation.


• Time your exit well. The natural feeling for all investors let alone business owners is to keep a good thing going. Knowing when to exit is critical and selling at a high point is hard to accept. Groupon may just be the next big example of a company offered mega bucks by Google to go for an IPO only to find that Google, Amazon and 481 others are hungry for a piece of a business model that you or I could knock out next week. Greed clouds vision when selling. In their case, $20bn was a pretty hefty sum to turn down. Similarly selling too early in a company's cycle may suit the serial entrepreneur but it may leave cash on the table if the business hasn't exceeded critical mass and scaled accordingly. Sometimes a mid-term management change can help (cf. the James Caan story).


• Be market driven not lifestyle driven. I know lots of people who have built lifestyle businesses and to be honest their valuations will be lower as typically they have built something to be an independent employee of rather than to have a business with a long term future due to a compelling market position.


• Keep your reputation well manicured. Your brand and customer standing is as important as good financials. Heaven knows Ryan Giggs Ltd has a somewhat tarnished image even if it is rich. Valuations are as much about the management, the staff and the reputation of a business as it is about the balance sheet.


• Govern your business as others would. Quirky little accounting tricks, dodgy expense policies, sly revenue recognition rules or silly stock management will always get recognised and penalise. Invest early in decent IT, ERP systems and CRM and it will make life easier for a buyer to manage, keep their deal costs down and mean more in your pocket.


• Time your exit sensibly. If you want to sell your business to retire you are already too late. Think ahead as buyers will want owners to stick around and manage the transition - at minimum they will think they smell a rat. They will most likely keep money back as performance related earn outs. Make sure that staff are involved in these schemes as daft as that sounds so that everyone, not just the owners, has an incentive to make a sale work.


• Share the love. As the staff sit like pawns in a game there is nothing more demotivating watching sellers and buyers haggle, often publicly. Even with fancy, cleverly worded 'retention bonuses' most staff will weigh up where their prospects lie in the future before seeing if some paltry addition to their wages makes a serious difference. Join staff into ownership early in some way or another either by direct shares or stock options. Make them desire the day a business is sold rather than dread it. Make the process of the sale exciting rather than a death sentence.
  More intelligent people than I know more about this but these are just a few tips from things I have seen just recently. The stories I could tell of people you probably think butter would melt in their mouths!

The Recruitment Industry Is Broken

Recently, on announcing sharply decreased profits, the CEO of high end recruiter, Heidrick & Struggles (H&S), L. Kevin Kelly, dourly warned that the recruitment industry's 55 year old business model was broken.

Citing the growth in DIY recruiting tools now available to firms and the waves of online search facilities at companies like LinkedIn, there is no doubt that there is a huge squeeze at the mid-market and low end. Finding candidates is no longer hard and the best value recruiters can be is an external sifting resource on generally available candidate information rather than having CV repositories as in the past. It certainly means that the age-old James Caan mantra of 30% of the first year remuneration as a fee per hired candidate is no longer a viable structure in this market and, as the recession bites, companies have not only reined back on recruiting activities but are now shopping around a great deal more.

It was inevitable really - recruiting in its regular form has had a good run for the money and the money has been exceptionally good. Even at the high end where H&S headhunt highly remunerated Board positions the market is also experiencing an erosion of fees as web based matchmaking services come onto the market to compete at much lower prices. H&S is a super, debt free and cash rich company and can survive but it now sees its future in a radically changed market model. In the past, search has yielded around 90% of its fees - in the future it will shrink to only 50% while 40% will be taken up by executive retention and coaching services, another 10% on tools to support this. For this to change, H&S is actively seeking acquisitions with its $183m cash war chest.

That sounds fine for companies like H&S but for smaller players, heavily exposed to the contingency recruiting market, this is impractical. Few have the cash resources to acquire such services and skills while many are still clinging desperately to an increasingly valueless model. There is no way companies will pay 15-30% of first year remuneration for a few clicks of a mouse and a first interview at best. Few recruiters have 'skin in the game' like performance linked fees and few come from the industry they are recruiting into, let alone have done the roles of the people they are identifying as talent.

Value is the key to the future for recruiters or volume, and the latter means more streamlined, web based service. Clients in the industry haven't helped the process with many driving the value out of recruiting by hammering on fees to the extent of running web based reverse auctions for volume placements. The whole recruiting industry is being squeezed from both ends in a market in recession. With the credit crunch to boot, it has been the 'Perfect Storm' and many recruiters who have suffered badly may never regain the lost ground as the market must change to deliver greater value to clients.

Companies like H&S are moving in the right direction when it comes to their high end market. But for mid to low end salary ranged specialists, life will get ever tougher as they are at most risk by the low cost, high volume models from the web. Even James Caan's golden touch has tarnished as his latest investment has struggled badly and only the agents in the City have done well recently.

There is a desperate need for a daring change in the business proposition and model in the recruitment industry that needs to resonate with clients and deliver real value. The days of large contingency fees for a few hours work are long over. Who will deliver the new model? Will clients respond?

The next year is crucial to the recruitment industry.

Learning By Failing

In today's Telegraph there is the usual feature of 'Ask James' where the Dragon's Den star, James Caan, gives his sage advice to job seekers. He is definitely qualified to do so, having made his considerable fortune off the back of starting, building and selling a successful recruitment company.

I had the good fortune to listen to James Caan speak last year at a small conference in London and he is very polished and enigmatic - every inch the 'nice guy' you see on Dragon's Den. I also think that much of his advice is very sound and this week's advice was a very good debating point about how to handle the very tough interview question of, 'Why did you leave your last job?'

I can sympathise with Caan's experience as I have heard every last excuse about the employer did not value the person, the targets were unrealistic, the hours too tough, the boss was an idiot, the company was going down the toilet, the pay was not good enough, the commission scheme changed, the company held back commission payments, the job role changed, and many more. I am excluding redundancies here but there is no reason why you cannot include them in the same question. The point being is that most candidates at interview look for another excuse to hide the stigma of having left their last company. And I say 'stigma' here as that is actually what they think it is. After all, no one would want to air their views about their boss at an interview with their prospective new boss, would they? Not unless they thought that leaving their last job was in some way a stigma that had to be explained.

Maybe I am using the wrong word here but it is that mental concept that an excuse or plausible reason has to be found for leaving your previous company and especially in these troubled times when there may be a considerable gap between leaving and finding a new role. Someone or something else has to be blamed.

Having been the interviewer in such situations many times, I cannot tell you how underwhelming it is to hear such excuses pushed out time and again. It doesn't matter who the person is or their age, the excuses seem to be the 'island of comfort' to explain people's inner lack of confidence in their abilities - the paranoid instinct that says there is always someone else to blame.

Failing, if it could be called that in losing your job, is part of life. It is as enriching as succeeding in terms of experience as without failing it is hard to know how to avoid it again while the subsequent feeling derived from succeeding after is all the more intense. We can all give our pithy stories of those celebrities or business people who pick themselves up after failure to succeed as such role models give us inspiration, but I often go to far greater depths to see how how people cope with and use 'failure' to their advantage.

Now let's stretch the word fail, here. Failure is not the only thing that pulls us down in life - there are many more reasons why people have to pick themselves up or make the best of a situation and I include in that people who suffer adversity for no good reason as well because they have similar, and often far steeper, mountains to climb but the principles are similar. So when I use the word fail in the same sentence as a name like Simon Weston it is not what I mean that he failed but here was a person who was dealt the cruelest of blows by being in the wrong place at the wrong time. He is one of hundreds of names we could use in the same context who have powerful, often thrilling stories of how they conquered adversities that threatened their very lives as well as their abilities to heal and move on.

It is from those people who have been dealt such huge blows by dint of accident, birth or negligence by others who use their situation to their advantage and become stronger characters and then successful people despite their enormous problems. Their special inspiration started by dealing with their point of adversity or 'failure' rather than dwelling on who to blame.

So when you sit down to think about the fact you have been made redundant or have lost your job because you personally failed to hit your target, don't try to hide the problem by inventing a reason or trying to transfer the blame. Think for a moment that you are in that position and you can dwell on the inequities that you may think put you there or you can plot your way forward, shedding the 'monkey on your back' that is the stigma of losing your job.

JK Rowling gives a very good account of this in her address to the Alumni at Harvard University where it was only when she faced the total depression of having no money, no job and no prospects that she could truly focus on the most important skills and ideas she had. It is something we can all use as well. Losing a job is tough and it is worse in a tough time. You may well have to accept that you did not perform as well as you should in your last job or because you were in the lower quartile of sales performers that you were identified as one of those who should leave.

Get over it. Think about what was it that you did and, more importantly, did not do that made you less successful than you should have been. Think about the number of meetings you regularly had, how you presented yourself, sold your company and why you failed to influence people as well as you could have done and then start thinking about what you can do to change things. So many times in my career I look back and think about how I could have done things differently and better, even when I was successful, and always it comes down to my lack of prioritisation. Even when I succeeded, I could have still not got bogged down in certain things and focused on more productive things that could have yielded even greater success and very often I find it was all to do with not moving from my personal comfort zones. Once I identified that, came to terms with it, I find things are far easier.

Sometimes you have to be honest with yourself about these things and being your own hardest critic is a recipe that can often lead to depression but is also the way to catalyse change. So when you think about that tough question about why you left your job, don't do what everyone else does and blame your last employer or someone or something else - take it on the chin if that's what it was.

The important thing is to do some reflection, once you have realised that you own your life and you are just as much to blame as your employer for losing your job. Was it your feisty attitude that put you at loggerheads with management which caused you to defocus? Was it the fact you you found it difficult to juggle personal issues and work? Think hard about why you possibly failed because learning the reasons allows you to see how you can change and be better for it.

There is a good reason why I mention all this which James Caan did not mention. That is that when I hear those 'excuses' from candidates I think to myself these things can easily be repeated.

If it was an issue with the boss then I know I am not perfect so it's likely I could cause the same issues for the candidate. If it was the company's lack of resources, well no company is perfect and so there is bound to be small things that cannot be provided. If it was the company not doing so well, it could happen here. The fact is that as an interviewing manager I would rather have people who have experienced things, understood what they have gone through and tell me how they dealt with it and how they will perform better in the future. Excuses are not a lot of use to me, interesting as they may sound.

Honesty is the best way and that starts at being honest with yourself. If you left a job because the money was rubbish, my alarm would be then why did the person enter the job in the first place? If the resources were rubbish, explain to me which ones were missing and tell me which company has it 100% right? If personal matters got in the way, what strategy have you worked out to cope with issues that may occur in the future that will no longer affect your performance? You see, employers should be very concerned about excuses about leaving the last job and it is certainly the reason why I ask the question. And for the skilled interviewer, if the answer is in the slightest bit unconvincing, then the follow up next questions will be like body punches as every interviewer should be looking for weaknesses and gloss.

Here's an exception - I saw the interview by Alan Sugar of the Apprentice, Jasmine, who won the competition and he lined up the question beautifully. Jasmine was the owner of her own restaurant business and Sugar pointed out that she would never enjoy such freedom to be as creative and as successful as she liked than when owning her own business, so why did she want to work for him? Her answer was that she wanted to work for Alan Sugar and here the alarm bells should have clanged. She was either bare-faced lying, motivated only by winning the prize of winning a job working for a dubious boss at £100,000 a year or her business was not as good as she made out. There was no follow up question - he left it at that. A skilled interviewer would have picked that whole 'facade' to pieces and find out what really made the girl tick. The same for the other pretty blond girl but each interviewer in turn backed off.

Most managers just want to hear what they want to hear. So you can get away with playing the excuses game in an ideal world. But today we are no longer in the ideal world - companies are not recruiting much at all and the jobless total is rising fast. Each interview is a precious moment to sell yourself better than any. Only you know your superior qualities and in that short time you have to show the exceptional things that make you different, not just qualified for the job, and sometimes exactly why you may not be qualified but the right person. You will still get the odd tree-hugging manager who has to have an exact match to the piece of paper but trust yourself that your special qualities will win.

So when asked that question - you will have done your contemplation. You will have come to terms with why you were chosen to leave in preference to others, you will have looked at yourself in the mirror and seen your flaws, you will have had your honest words with yourself and you will have identified what you need to do to be more successful in the future. By the time the question has ended you will hit the interviewer square between the eyes and tell them you failed but you know why, you dealt with it, you benefited from the experience and this is what you have done about it and why you are a much more capable person because of it. In fact, you were glad you failed because most people go through life never knowing the reasons that hold them back from being very successful - failure exposes the weaknesses within, that becomes the powerful force for change that is the platform for a successful life.

So when Simon Weston realised that he could not turn back the clock or get his body back, he faced it down, stopped blaming others for his misfortune (even though there were others to blame), fought the demons it caused and used it to become the incredible man he is today. He, along with thousands of others who have been dealt the really hard cards in life, are the most inspirational people on earth because their 'failures' made them the people they are today. At a recent service on the Falklands, Weston met the man who pushed the button that sent the Exocet missile into the hull of the Sir Galahad that fateful day and changed Weston's life for ever.

He forgave him because in many ways, he had a lot to thank the man for. The ordinary guy from the village of Nelson in South Wales, became a great inspiration for many as a result.

That takes some incredible guts and human spirit to say that even if it sounds illogical, but misfortune and failure can make ordinary people quite extraordinary. Believe that, and you will ace the dodgy question at your next interview - just make sure you are 100% honest with yourself, know what you have learnt and why you are a better person because of it.

Play that message to yourself a few times and then think of all those whingers who make the excuses. Sounds a whole lot better, doesn't it?

The Power of The Negative

Whilst sitting in the bath, I noticed two pieces of reading material we have side by side on the window sill are, '1,000 Places To See Before You Die' and Richard Wilson's 'Can't Be Arsed'. Essentially Wilson's book is a parody of the theme of the one next to it and is a torrid but funny series of reasons why not to do exciting things or see certain places before you expire. It struck me as odd that such a negative series of thoughts could be turned to profit.

It reminds me of the situation we are in right now in some ways. We are in the heart of a recession and every way we turn there is negative information, news, thoughts and people - it's enough to drive us to despair and sometimes it certainly makes me feel down. Strangely, it as at such times I get more creative, am able to channel more energy into things and get better results. Maybe that's what Richard Wilson (not of 'One foot in the grave' fame) used to be successful with his book - I don't know.

Thinking about the subject further, one of our most useful inventions uses the principle of creating negative energy - I am talking of the refrigerator. Sometimes negatives can be powerful sources for positive thoughts and energy - call it desperation, call it 'when all else fails', it doesn't matter, I like to think of it as inspiration.

Inspired By Negatives

If you want to hear one of the most inspiring talks, then sift through the Harvard Review online and find JK Rowling's address to the Graduation Ceremony last year. She talks to some of the most gifted and un-desperate people on earth to tell them how she found inspiration in her darkest hours. When she was virtually penniless, a single mum, and having lost her job she was as big a failure as she could be. What she talks of was how, at that lowest ebb, she was able to throw off all the inconsequential things in her life that had no bearing on her position and focus only on what was important - her child, her home and a big, big idea.

From this lowest point, Harry Potter was crafted, having already had the idea some time earlier, and it became the focus of all her energy, turning negative energy into an incredible, powerful positive.

I have also read some articles from a chap called Richard Fenton whose mantra is 'Go For No!' in sales and he advocates that you should up your failure rate in sales. His perverse logic is that you need to fail regularly to be successful in sales. I can understand the gist of what he means as the more you fail, the more your desire to succeed should compensate - but that is not common to all people in sales or business. Sometimes failure drags them down.

At this point, the recession looks very negative. Wishful thinking people who have not heeded warnings have literally Hit The Wall and gone from having a successful business one minute to abject failure the next - simply because they had not failed enough in the past to sense it careering up into their faces. When it strikes, they simply abdicate all responsibility to cost cutters and pretend that it is the only way forward - in fact, they have already ruined their business by that point.

So the point of my article today is how negatives can be turned into positives - and how to take the recession by the horns and turn it to your advantage making it something from which to survive and, indeed, to thrive.

Hitting The Wall

When companies Hit The Wall, as I call it, they actually find that, in a very short cycle, just about all of their key business indicators have turned negative on them. I used the example of Norwich Union/Aviva lately who consumed a £multi-million budget to advertise that they were changing their name - yet, with some of the adverts still running, they have reported heavy losses, seen 33% wiped off their share value and shedded 1,900 jobs. They ran straight into a recession while spending more money on advertising in a single period than a good share of the combined sum of the salaries of the staff they have just made redundant.

That's what I mean - it is the idea that one minute the garden is rosy, sales are buoyant, the forecast looks good and you believe that you have a recession-proof business as everyone needs things like insurance. Suddenly, you are in the depths of despair and the only way out is to hand the business across to professional numbers-people and hack the heart out of the business.

For small and medium sized (SMEs) businesses, this can be far more damaging. Too many SME firms have either a one-track business or have too many eggs in too few baskets. When the recession arrives it can be like an absolute bomb going off, literally wrecking the business overnight. I know a recruitment firm that in one quarter went from record sales to 50% drop and had to shed 50% of its workforce. They are not alone, even the mighty Dragon's Den hero, James Caan, has a latest venture which is suffering while Michael Page has seen its worth drop dramatically from the point at which it turned down a bid from a would-be suitor.

Recessions pay no respect to egos or reputations - they can ruin anyone.

Turning Negatives Into Positives

The most common issues faced by firms right now is dwindling order books and low or negative cashflows. The answer in most cases is to dramatically cut costs and try to eek out longer terms with suppliers while voraciously collecting cash. These are the answers from the numbers-people and they make sense. However, it would help if sales went up and cashflow became more positive - but that's the point of a recession, they go the opposite way.

Too often in the recession, the above action is the limit of the thinking. Batten down the hatches until the market gets more buoyant. The sales-driven executives have handed the reins to the finance guys and that's that. When the negatives get too much, too many executives are happy to 'walk away' from their pulpit of success, hand over the power to finance and snipe from their background position about the company's long term prospects.

It's a pity they don't mobilise that negative energy into a powerful force for the positive - if nothing else, the negative attitude will rub off on staff and things tend to spiral from that point.

Here's a thought. If cash is tight and sales are low - how can you find more sales that bring in cash quicker? The first step is to ensure you know enough about your current sales to make an intelligent decision. The decision needs to be about the product or service you want to sell, what its value proposition to the customer is, who would be interested and how you are going to get that message to enough people in a short time to make it successful.

The heart of the decision is to make an attractive incentive for cash payment for the proposition, but the most crucial part is the value proposition - it has to resonate with the customers you choose. Messaging is vitally important here and everyone in the organisation must be word-perfect on the message and spot on in execution.

Very often, the answers to tough questions can lie right in front of you - only the negative thoughts stop you from seeing them. If you have a product or service that is valuable, then make sure the value is realisable fast and compelling - then make sure you know who would be interested, why and make sure you get in front of as many of them as possible, with as many of their objections thought of as you can, and as fast as you can.

A recession will kill those companies who stand still - mobilise your thoughts and people with cohesive messages and actions to turn negatives into positives.

Blue Ocean Thinking

It is always a surprise to hear that many successful companies started during a recession. Dave Hewlett and Bill Packard (HP) started their business in a garage in 1939 building a device used by the Disney Corp. on the film Fantasia - it was not what you would call ideal conditions for a start up. Cisco claims to have started in a recession, as did Facebook. The key to success in a recession is to find a part of the market where there is less turbulence from competitors or is simply an unaddressed need.

In the teeth of this recession, car sales in the US and the UK have dropped dramatically and there is a real risk that many car makers will either not survive or not exist in the same way as before. While sales plummeted 30% in the UK over last year in the peak selling month of March, in Germany they rose by 40% and in France by 10%. In these countries, in conjunction with the Government, a scrappage incentive was offered direct to consumers and backed by a vigorous sales and marketing campaign by the vendors and their dealer networks. The results were spectacular while in the UK we are still considering what to do.

The fact is, there are an awful lot of old cars out there, the dealer network has switched to secondhand selling and the car makers are in too much trouble to see what to do. By the time we do something, it will be too late.

What has happened is that while most car models have dropped in sales, small cars have bucked the trend by selling up 80% on last year - the Ford Fiesta leading the sales charge for the fourth successive month. Here is the plan for the future right in front of people's faces - swap production skills and tooling into making more smaller cars with ultra high fuel economy or new eco fuels and cut mid and high end cars to a minimum and charge a huge premium for them. It is the ideal time for better, more environmentally sound, vehicles to be made and a chance to shape the industry for the future. By using the scrappage incentives in a targeted way, swap out the oldest cars for the new small ones now.

It calls for a concerted line of thought and actions - we have the chance to build a new, better car industry from the ashes of the old, and the opportunity is right here and now.

Blue Ocean Thinking is all about re-invention and in a recession there is no time like the present. The recruitment industry has been cruising for a bruising for some time. In the sustained boom, it grew fat on high fees, low value for money and has spawned a new, valueless level of service on the internet. Recruiters have been very hard hit as companies have cut back on headcount and not replaced those who leave voluntarily. For my example firm, with too few large customers, the effect has been crippling. Correspondingly, large companies have devalued the recruitment process, outsourced it to foreign shores and introduced reverse auctions for placement - how on earth can companies get good people in a recession by using such a valueless selection process? Now is the time to re-invent the whole industry.

I have long held the belief that recruiters should share the pain for poor recruitment. I believe there should be performance related incentives for recruiters so that fees are lower up front and are earned over time according to the success of the recruit and their clients, and I am not talking stock options here. Instead of having salespeople in the recruiters, have professionals who have recruited and managed the kinds of people they are trying to recruit for clients. It will bring back the value in the industry, reduce the costs due to bad recruitment, create more value for recruiting clients and, long term, more profit for recruiters.

The firm that breaks the mould today and offers this kind of model will take the high ground - I know, I have already worked it with clients like Theorem Inc of the USA, and we are both better off for it.

Channeling The Negative Energy

JK Rowling created the most successful series of books in modern times which have also produced a string of fabulous films and merchandising - so becoming incredibly wealthy in a matter of just 10 years. The whole concept was built out of failure and despair. Sometimes you have to fail to realise what its like to really succeed and certainly success tastes that much more sweeter after a failure.

Rowling's message is simple - when you are at the lowest point, you can shed all of the things which are not important and focus only on the things that mean most. It means you can channel all your energy on the things that will bring you most success - by having that single-mindedness you can increase your creativity and make something far more powerful than you could ever do if all you have is success. For many firms, the recession will mean a re-focus on something new or an innovative change to their norm.

If there is one message out of all of this, it is to prioritise. Sit down, think what is important and, quite literally, forget all that is unimportant so that all energy, investment and skills can be applied only to what is important. Don't do an Aviva - now is not the time to blow a lot of money on nice-to-haves. Make sure every penny brings a return.

Make the recession work for you.

Think, Act, Review - The Art of Executing Plans

In a business meeting today, the person I met described me as 'Cerebral' in my approach to business. For those who actually know me in business, social settings and in my family, they would laugh aloud at the description.

Applying some cerebral power to the comment I could understand the person's train of thought. I had described how I go about executing, and how I believe in thinking something through, devising my plan or strategy, and then rigorously executing on it, with a final step in the process of reviewing the results before adjusting and continuing to execute. It's a tried and tested process but in the heat of a sales battle, often rapid action is preferred as any perceived dalliance is itself deemed as indecisive.

Planning - The Vital Key To Success

In the last few years it has been a feature of business to drive business through a series of short term actions, often with short term goals in mind. Monthly targets are a key driver for this and we all know these are essential in business but they can lead to poor habits. However, as we suffer a deep recession, many of the exponents of short term actions have been the first to hand their organisations over to 'cost cutting' or 'restructuring experts' because they simply ran out of ideas for the next actions. One minute the garden looked rosy, the next it went to pot.

I have blogged about planning for a recession. Many people have said that I was talking a recession up and bringing it on myself, while others have commented that a lack of a positive approach leads you away from the opportunities. The latter may be true but as a person, although I may not always show it, I am a naturally worrier. I am always thinking about where my next sale will come from and making a success of the projects I am involved with.

When I plan for myself, I plan first for survival and then next for the upside.

I may not be the world's greatest at grabbing success by the horns but I have a better understanding of how things can fail and so avoid them more effectively. In this recession, my business has gone up and I would reassure myself that it was because I worried early about how I would survive so that I put into place a plan of actions that not only has so far got me through the recession but has actually help me to do better than I expected.

I still worry each night before I switch off the light, but at least I am thinking ahead to my next day in business.

The Power of Thought

To constantly think about something and do nothing, is a plan that rarely succeeds. To just do things without thought, is a fool's game - it will end in disaster. To think and then do, is the basis for success.

I advise people, when making decisions about their next actions, to think what they want to achieve in terms of strategy and sales 3 or even 5 years down the line, because your decisions today are likely to have a profound effect on that. I worked for John Weatherhead at Frontline who always said that what you do tomorrow morning will either make you or lose you millions - because it is the effect of your decision a year or so down the line that will be an outcome of your next action. That always made me think about things rather than just jumping in and doing them.

So if you do nothing for one day, it costs you the value of a day's sales a year or more later because you pushed it away by another day.

Similarly, if you make a decision today which has only a short term effect and buys you a problem a year down the line, then you have lost the value of the future sales.

Very often, Channel sales plans of emerging companies go exactly that way. Short term goals buy long term legacy problems that hinder sales at crucial inflexion points when graphs should be shooting upwards. You may be left with a small, boutique Distributor when you need one with financial and logistical muscle to take advantage of the market a short way down the line.

Thinking that little bit more should not cost time - it is a logical process that should focus on what you need to achieve and what the path to that success looks like and with a clear view on what can impact that success positively or negatively on the way.

It's not cerebral, it isn't rocket science, but experience does help.

I would contend that the Credit Crunch is the result of short term profit focus by banks who lost sight of the 'cause and effect' of their actions. Anyone looking in from the outside could see it was a stupid strategy which had simple flaws and many single points of stress or failure which would bring the whole thing down but short term profit has a terrible lure. When coupled with a flawed earnings scheme there can only be one outcome - total disaster. The issue has been that the solutions have been executed with the vision of restoring the status quo when any fool would know that you have to sort out the fundamental flaw first, restructure the system and ensure that banks focus on their core skills of supplying capital and credit instead of making money out of nothing.

Planning Through a Recession

Many of the bullish, sales-orientated CEOs who have handed their companies to accountants to sort out the mess, are those who have weak planning skills and the inability to think ahead properly or at least more than just when the graphs all point upwards. Recessions, if faced up to and planned for properly, can be times when new opportunities arise which fundamentally change companies and give them new, sustainable profit opportunities. For those who do not change, they can indeed get caught out.

Warren Buffett famously describes it as being caught with no trunks on when the tide goes out - i.e. a lack of strategy. Many retail businesses have collapsed because of this as they relied solely on the amount of money in people's pockets being large enough so that their products would be bought by the law of statistics rather than product differentiation. For many businesses in business to business sales, it has been the failure to strengthen and prove their Value Proposition which has caused problems. It is a dumb assumption to make that a business is either recession proof or customers always need your products. In recessions, everything changes and no assumption is always right.

Recruiters are one of the most vulnerable businesses right now. Open vacancies have slumped to a low while unemployment has risen to 2million and is expected to reach 3million by the end of next year. Even Dragon's Den heroes have their mettle tested in such environments and I have heard rumours that one of James Caan's proteges is suffering, as are the mighty Michael Page and many others. Yet companies like Intramezzo are actually innovating by focusing on where there is investment. They are looking at emerging businesses and ideas and matching experienced entrepreneurs with new money as VCs actually have plenty of it for new ideas but don't want to pump more into current businesses. It's that kind of clever thinking that will seed a new business opportunity for long after the recession and it came about through planning on how to make money in a recession.

Old Adages Die Hard in Recessions

'Half a plan, badly executed tomorrow, is better then doing nothing at all'. Tell that to the brainiacs rescuing the economy. Thinking does not take a long time but can save an awful lot of failure and money if done in conjunction with the proper devising and execution of a plan. Nothing beats a good plan, well executed - and it is always worth waiting for.

If that's cerebral, then call me Einstein. I think it's just learning from bitter experience and comes with age.

Catching A Dragon

TV's Dragons Den has announced the first failure of one of its investments. JPM EcoLogistics called in the administrators last week. Deborah Meaden and Theo Paphitis had put in £100,000 for a 40% stake and they put in a further £27,500 after an emergency cash call despite asking all the right questions.

No Guarantee of Success

While Duncan Bannatyne was swift to point out all his investments were doing fine, both he and James Caan supported Meaden's views that Investors tend to look at a portfolio of investments to spread their risk and increase chances of a success. Meaden is right in saying '....if you don't take risks you have no economy.'

Of course, this is cold comfort for the Directors of JPM, Jerry Mantalvanos and Paul Merker, who went on the show in 2007 to seek investment in their haulage firm which ran its fleet on bio-diesel. They must have thought, as many do, that having high-profile investors you have a greater chance of success. It is also a body blow to firms which Lord Mandelson has described as contributing to the longer term view of decreasing emissions which seems curious that he has not selectively moved to help save it. But I would have thought it was just another soundbite in the sea of them from the Government at the moment.

The Reality of Business

What JPM's demise shows is that programs like Dragons Den are for entertainment value only. The reality is that there is no substitute for investors who are going to pitch in and support you. Fair play to Ms. Meadon and Mr. Paphitis for responding to the emergency cash call but I suspect that the Directors probably rued the fact their choice of investors was more based around celebrity than hard business facts.

I have no formula of success to reveal here but sometimes in a business like that, it would be wiser to look for investors who are like-minded or in the business. Unless you have a patentable, new technology that is ground breaking, firms of that nature are just a new, green take on an existing model and success was highly likely to be dependent on a few factors - 1) the price of bio-diesel as compared to normal diesel, 2) the comparative cost of maintaining the vehicles as compared to traditional haulage vehicles, 3) the comparative fuel economy of the vehicles but most importantly 4) the response of the competition.

Assumptions are usually the things that conspire to kill a business and sometimes it is too easy for an entrepreneur to get seduced by their own subject or idea to see how the market may respond. The haulage business is very traditional and mature and in austere times when cargo rates have been dropping, it was not the time to introduce premium rates to help satisfy Corporate and individual consciences about the environment.

Cost is king at the moment and so it is not surprising that such noble thoughts fly out of the window.

Sympathetic Investors vs Practical

One way around such a problem of having a fresh approach to an old, established industry with no greater innovation than a green edge was to have sought a long term investment by another haulage or similar firm who may have a vested interest to start a more green business. The reasons for this may be several but the most obvious would be that the industry is going to be forced down that route at some point in the future by legislation, it may be possible to seek greater help from Government if an old-style firm is seen to be practically investing in the future even by shareholding, and finally, it may actually be a really good bet.

How this could have practically helped is by JPM having a more practical investor. For instance, more business might have been able to flow to JPM from its investor on a spill over basis or because it is premium or the investor might have been more amenable to running JPM as a loss making investment for longer for reasons of legislative moves as explained above and by supporting it through the profit of the main company. It also provides a ready 'exit strategy' for all parties.

The problem with Dragon style investors is that they are investing purely on the worth of the business opportunity as they see it and from portfolio of risk point of view. They are not looking at it from a long term compliment to their own business or portfolio of businesses which may have afforded better protection to JPM.

The Dragons have responded with James Caan suggesting in future Dragons will want a bigger stake for their investment and I think that is very indicative of why Dragons are not good investors for everyone, although Duncan Bannatyne has still said his decisions will be made on a case by case basis.

No Right Answer

From an entrepreneurs point of view, there is no real right answer. Investment money is investment money. But as a rule of thumb in my book, if you do not have a patentable idea just a new take on an existing business, then you are going to run at loggerheads with the existing market. For that reason you must, must, must get your assumptions right and test them to destruction before you start because the incumbents in the industry will see you as a threat and treat you accordingly. So your Value Proposition, marketing, service levels and cost base must be able to stand the test.

In JPM's case, clearly they became victim to the desperation within a tight haulage industry. The Value Proposition around green haulage depends on the buyer's belief in a greener future. Today, and very sadly, that is not a strong enough reason to prefer the service when every major firm is looking at its cost lines.

Together with that, and their choice of investors, JPM walked into a trap of their own making. If only they had a business centred around environmentally carrying bank executive bonuses or disposing of bail outs more effectively - that would be a good business to be in.

Dragon or Pussycat?

'Entrepreneurs say they got burnt by investors' demands', shrieks the headlines in this week's Sunday Times.

'What a surprise' some may say in response. I listened to that nice James Caan's talk recently at the EREC in London when he described the Dragon's Den Show as terrifying at first as the Dragons had to make instant investment decisions without foreknowledge or due diligence. A 20 minute pitch and you make up your mind.

The article basically says that a few entrepreneurs have endured the nerve-wracking TV exposure and got their deals with a Dragon only to find that subsequently for one reason or another the deal falls foul.

TV Reality reflects Life

For once it seems a TV Reality show actually mimics reality. Gaining investment is not an easy process and inevitably it means that the two parties must ask deep questions about the veracity of the entrepreneur's claims, knowledge and ability to execute on the plans. If not then the Dragon may as well put their large sums on the 5.30 at Kempton Park with as much hope of a win.

In one instant, an Australian entrepreneur had an agreement in principle from two of the Dragons only to find 4 months later that it fell through. In a further instant, a chap who had a Foot Deodoriser had an agreement to invest but the deal fell through when it was found that he did not have a patent on the product although the entrepreneur claimed it was the Dragon who had put him under as much cosh as an employee.

How good is a deal anyway?

Some entrepreneurs have claimed the deals are not healthy. Lara Goodbody (surely an Ian Fleming name), the co-founder of YogaBugs, declined £200,000 for a 30% stake in her business and later got £250,000 for 15% in the business from another unrelated investor.

And here is the reality. Dragons Den is all about making good TV. Sure the Dragons have made a lot of money but they did not do it by chucking £100 or £200,000 down the pan on poor ideas. Likewise, people who give away 40-50% of their company for inward investment are effectively making themselves an employee at best and certainly the voracious ability to own your idea has been diluted greatly. Moreover, where is the equity left to hand out to diligent employees in the future when the share-grabbing Dragon has such a large stake.

Entrepreneurs switch off your TVs

The reality is that the Dragons Den model is not good for real investing. The Dragons are making multiple investments for small cash in their terms that would normally consume large portions of their time to make the business successful. The entrepreneurs meanwhile seem to want to desperately give away huge chunks of their equity for relatively small capital stakes in the vain hope that James Caan or Duncan Bannantyne knows someone that can get them a quick hit to make millions.

In practice, gaining inward investment needs a strong business idea, an even stronger business plan which has sound research and strategy and then people who can execute. Entrepreneurs come in all shapes, sizes and backgrounds yet it is rare that you get the combination of all those things. Most commonly missing in people who have great ideas is the ability to take the idea to market or sustain that market. These people may be great at selling the concept but seeing a deal through to fruition may be very different.

My advice to would-be entrepreneurs is to build a proof of concept first. This means building a prototype business with the minimum possible outlay and creating the first few sales to prove your idea has legs. The first thing you may realise is that the idea actually pays its way so the investment required is for expansion only rather than getting the product built. The second thing you may realise is where your deficiencies lie and so the investment may be to get the correct manufacturing contract to build or people to sell etc. Proof of concept pinpoints exactly where the money will be spent rather than the investor seeing only large salary cheques being paid with their money.

It also means the entrepreneur has the upper hand. It will not mean you have to give away large chunks of your company for comparatively small sums. What you have proved is that you can take a small share of a large market and so you can sell the end scenario rather than next year's - the idea that the £250,000 for 15% is not an investment in a company with a small market but one that can take 10% of a £multi-billion market. If the investor cannot see that then walk away.

Dragons are real

What the article shows is that the Dragons in the Den are real. They don't actually give away all that money without due diligence and there are plenty of caveats before the entrepreneurs get their cash that are not shown on camera. However, the reality is that unless the entrepreneur can see a distinct and real advantage of taking a Dragons' money other than for the money itself, then this is exactly not the way to get inward investment in a great idea.

Dragon's Den or Dirty Den? TV Hero James Caan Shares His Secrets

'Observe the masses and do the opposite,' said James Caan as he opened this year's Executive Recruitment Conference at the Business Design Centre, Islington yesterday. This has been his personal recipe for success, but for those of us in the audience the burning question was why on earth did he invest in the dog-walking treadmill, 'Fur for life'?

The founder of recruitment firm Alexander Mann in 1985 which he eventually sold for, well put it this way, a lot, is now a household name but remains perhaps the most unassuming of the characters on TV's Dragon's Den and yesterday's talk reinforced it. He was relaxed, funny, engaging, answered all questions and stayed behind later to talk to a waiting throng but he just could not resist getting his gratuitous plug in for his new book, 'From Brick Lane to Dragon's Den'. Ah well, scratch the unassuming part and hence my reference to Dirty Den.

James Caan's 5 Tips For Business Success

For all in business, James' tips are worth knowing:

1) Vision - have vision which is transportable to a brand

2) Create a Partnership culture which allows people to share in success

3) Attract great people

4) Hire people better than yourself

5) Encourage Intrepreneurship rather than entrepreneurship to create depth and diversity in your company

It's worth exploring a few.

Creating vision requires clear leadership and good leadership provides a strong cause which allows people to buy in. He uses the example of Ronald Reagan touring a NASA facility and coming across a guy sweeping the floor he asked the rather redundant question of what did he do. The guy replied, 'I send people to the Moon.' That is a hugely powerful force in an organisation when such a lowly employee is joined into the common cause.

He also points out that over the years he has searched and recruited for many senior executives, most of which have joined big companies but few of which were given equity in the business - not just stock options. He asserts that sharing more of the fruits of success creates a far more vigorous company and develops creativity.

In attracting great people and recruiting better than yourself he gives the great example that having started Alexander Mann in 1985 he had built after 7 years a £15m a year revenue company. So he recruited a new CEO and went into business development himself. The new CEO took the company from boutique recruiter to mainstream and the first tranche of the business was later sold for £130m because James had realised he was not the person to have done this.

Intrepreneurship was for me the best tip. He gave the great example of a young girl in her twenties who had only been at Mann for 8 months, who had previously run a nanny business, came to him with the idea that major companies would outsource their recruiting. James initially could not see why companies would do that or how the model would work but they decided to give her a new legal vehicle, a small office, some equity in the new company and within a short period she had closed the deal with Vodafone. The Company was recently sold to Private Equity Firm Graphite for £93m. His assertion is that don't let people have to be entrepreneurs and start their own business to realise their ideas.

The State of Recruitment Industry

For many in the audience some of James' points were not welcome - I loved them. He bemoaned the state of the Recruitment business and that recent developments had brought 30% fees into sharp focus. Was a phone conversation and an hour's meeting to get a job brief all that was needed to recruit for a company? His maxim was that you needed to spend a minimum of 2 days with a Company to understand expectations, culture, management style and more before you could possibly be able to spot individuals who could do the job. Hurrah for someone in the industry and so prominent to argue in the face of 'Transaction Recruiting'. I will keep this independent but he also highlighted that 30% fees are justifiable when the process is executed with diligence because the cost of getting it wrong is not only lost recruitment fees, it is the rolled up cost of the executive's salary consumed before leaving and then the ramp time to find a replacement plus the missed opportunity cost - an equation I have replayed to many hiring executives and HR people who still simply choose the cheapest. When I posed that question to James that the industry is responding to the requirements of clients, he rightly was adamant not so - this was the recruitment industry conditioning business that it is all about quantity of CVs produced and getting a fast buck. Clients, if sold to properly, would always choose to pay 30% fees for proper diligence to avoid the cost of bad recruiting.

More Serious Matters

So why did James Caan invest in the dog treadmill, much to the derision of his fellow panellists? The story goes, James arrived for his first shooting of the TV series and did some rehearsing before they went live. A short way into the filming, a wave of panic came over him - where were the documents and business plans for the participants so he could read up before they came on? Fellow panellist Duncan Bannatyne put him right - the person gets 20 minutes to pitch an idea, you have your money and 20 minutes to decide based on what you have heard. This is television and reality show business. After 5 days of filming James had not made an investment, remembering they film the entire series in one hit, because his conservative approach could not allow him to make a decision based on the model. So as he got up for another day of filming his wife asked him how it was going and he replied that it wasn't going as planned - he couldn't make a decision. She reminded him he could not go an entire series without making an investment, he would hardly be invited back if he did that. So when James got on set that morning, he backed the first person who was filmed, Sammy French and 'Fit for Fur'. I like that story.

The roaring success was Peter Moule's Chocbox. This guy had been in business a while, had sold more than £1m of his invention, made £350k profit and had £250k in the bank. He wanted £150k for 10% of his business. The other panellists scoffed and wondered why the guy wanted an investor, he had a business. James Caan was intrigued. Amongst all the wannabes who came on the show with the merest slip of an idea, no sales or proof of concept, no track record of success, no money of their own and just a vain hope of success, here was a professional guy who had the product, sales, track record and cash of his own. It was a gift horse. Peter Moule, meanwhile, had a plan.

James beat him up to get 40% of the company for £150k and they horse-traded so that 1% of equity would be given back effectively if Peter sold £1m more. By any measure it was a good deal and having seen the episode myself, I thought Peter was daft. Not so. James Caan's connections brought in a huge wholesale electrical distributor who negotiated an exclusive deal on the product in return to buy 5m units each year for 5 years. Peter Moule was nobody's fool. Overnight for 40% equity he had transformed a bumbling, profitable business into a multimillion pound success and market leader.

The corollary to the story was this. Some months later, Peter Moule called James and bemoaned the fact his entire month's work was receiving a single order from the distributor for hundreds of thousands of units, forwarding the mail to the factory and then creating one invoice. Success had made his role redundant. Further he had not touched a penny of James' money so there was £400k plus interest in the company doing nothing. So James, who received thousands of hopeful business plans a week many with 'electrical' in the heading, decided to set up a joint venture investment vehicle with Peter, 60-40 in Peter's favour. James would forward 'electrical' business plans, Peter would investigate them and together they would decide to invest or not. Peter Moule, from 20 minutes of TV in which 4 out of the 5 panellists poo-poo'd him, had become a real life Dragon.

Summing Up

I like James Caan. He is not just a hard-nosed businessman; he has true, ethical values in an industry that has forgotten them. In the era of web-based recruitment, his deep belief that reducing the cost of recruiting will ultimately cost hiring companies millions in poor recruits being jettisoned and reloaded is right on the money. The figure at senior level is 40% of all executives will fail in the first 18 months. It really pays hiring Companies to choose recruiting partners who understand them and share their pain when it goes wrong.

You know, I even think his book will be a good read.