Choices (it’s all about risk)

This company had struggled for years to reach profitability when I received the call to talk to the founder about his choices in the marketplace.

Why not consider a back up plan in case the funding source you are counting on does not materialize? After all, being a partner in your project is better than failure, which often has personal repercussions beyond the business losses.

The CEO was certain that the next round of funding was just around the corner and he wanted nothing to do with the alternative I had suggested.

My suggestion? A Strategic partner would help gain market share and / or build a more efficient manufacturing capability and allow him to concentrate on what he did best (and quit spending most of his time raising money). I followed up diligently to no avail.

The banker that had referred him to me a year ago, called last week to tell me the firm was being liquidated.

Another great technology, great product, and good business model imploding because the founder would not take the finance blinders off to look at other approaches to survival.

It hurts me to see the lost money, energy, jobs, technology, and all the years of creativity and building that went into this firm.

Perhaps my approach is too soft.

I tell people that if they “just wait to say no” and look at alternatives in case their own plan doesn’t work. Then there will be a choice available as a resort to failure.

This does not work in most cases. I get more liquidation calls than I care to take.

Your stories and suggestions for improving my approach would be appreciated.

MikeT

Moody’s: Half of Defaulters are PE-Owned

Think about it;

Nearly half of all of the non-financial businesses that defaulted in 2009 were owned by private equity, according to a Moody’s Investors Service report, which warned that the elevated default rate among sponsor companies will continue in 2010.

1 + 1 should always = 2.1 or more. Otherwise, the risk is just too high.

There are measurable ways of approaching acquisition & tools that lower risk (well worth the investment).

Mike Tikkanen mike@PackardAcquisitions.com 952-542-9318

 

Warren Buffett Let’s Cat Out Of Bag

“Don’t ask the barber if you need a haircut”, doesn’t sound like the deep philosophical guidance that could account for why only 17% of acquisitions add value, unless of course that wisdom were coming from Warren Buffett.

Don’t ask the broker if you should do the deal. Players don’t get paid if you don’t do that deal. Of course you should do that deal.

And yes, you will get a haircut.

A KPMG study conducted in 2000 determined that only 17% of Mergers and Acquisitions examined created a substantial return and, even more discouraging, 53% destroyed value. Validating these findings, a six year study by Business Week showed that 61% destroyed value that existed prior to the acquisition (BW October 14, 2002).

Mr. Buffett uses large company acquisitions to make his points ($50M for a couple of weeks work), but I would point out that all fees in all transactions are large per time invested & that there is almost always someone “suggesting” that this is a great deal, who will be handsomely rewarded upon its completion.

That advice needs to be considered in its own light (if I understand Warren’s comments correctly).

IP, Money, People, Perception, & Reality

Many struggling inventors and start up IP companies believe that their problems would be solved with just one more round of financing, or if only the bank would loosen up the credit line one more time.

In my experience, more money rarely solves all the problems of a troubled company.

Much of the time, pieces of the company are missing, perceptions about reality are mistaken, or some other fatal flaw that money doesn’t answer, keep the firm from its potential.

Would the company benefit by finding a value added reseller, added management talent, or a joint venture partner to bring it to market, or have it manufactured?

Ignoring hard reality and fighting viable alternatives too late works for no one. Considered early as a possibility, discussions can happen, choices can be considered, put on hold, or executed later.

So often, the funder has been exhausted with failed promises and missed deadlines.

Impatient and lacking the trust and enthusiasm that began the relationship, stakeholders / funders timelines diminish and choices and bargaining power evaporate.

Beginning with all possibilities, we open doors to more choices as well as show supporters (funders) that we are open minded and willing to plan for all potential eventualities.

Have an opinion or thought to share?

Write a comment.

The True Tale of a Deal

Many of us read INC Magazine. I hope you’ve been following the tale of Norm Brodsky’s effort to sell his company. His chronology began in 2006 and continues today.

He recounts his path into and around some of the potholes on the journey to a successful transaction, including:

-the decision to sell
-balancing the needs of each partner
-the offer
-choosing a buyer
-due diligence
-negotiations
-external factors
-wild cards
-selling a majority of your company
-trying to sell it again

The saga goes on, as Norm works all the angles while he attempts to exit the business successfully.

You can catch up on the story at: http://tinyurl.com/yeshdur

Get the right experts involved in your deal…don’t try to learn as you go, no matter how smart you are.

Cliff Allen 651-226-2853

Not Invented Here

Sensible people can make thousands of hours of work & spend huge dollars to accomplish what has already been done because of the mantra “the work must be done in house”.

Whether seeking market share, technology, distribution, or other growth options, the not invented here syndrome can be a defensive and high risk position.

Psychographics Part I

For the first time ever we have dissolved an agreement before beginning a task.

From this tortured experience we learned a serious lesson in the importance of psychographics when measuring a prospect for services.

This perfect prospect had terrific cash resources and a great national plan for rolling up smalls in the industry.

When Finance Is Not An Answer

When all you have is a hammer

A recent phone call proved to be another painful exchange with a hammer toting consultant that could not see value in spending time on any effort other than raising money for his venture.

No matter that the banks are cold, he’s had no luck with presentations to non bank lenders & equity groups, and his client is on the path to extinction if an answer does not present itself soon.

After several attempts at explaining how money comes easier to deals that have the important pieces in place, I found myself throwing in the towel earlier than I used to.

I could feel how firmly the blinders were glued to this man’s head.

It was as if I was trying teach a pig to sing (wasting my time and annoying the pig).

What needed to be understood was, the reason his project was so hard to fund was that parts of it were not far enough along, safe enough, (management, etc) or it just needed to have something not currently present. Money comes to deals that have the necessary pieces in place.

Each struggling venture has one or more part/s that need to be bought, fixed, or found.

Allowing a search for a strategic partner, joint venture, or acquisition target, one gets to pick between money offered at reasonable or unreasonable terms, and another set of alternatives that may or may not be more attractive than a straight play for money.

In business as in life, having choices is better than not having choices.

Have something to add? Your own business wit?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.