Feb 15, 2021 | Change, Management
I expect 2021 will be a year where there is a lot of M&A activity as businesses weakened by the impact of the Corona virus are snapped up by rivals with a bit of cash.
The simple equation of M&A is that the price to be paid for an acquisition will be determined by the assessment of the risk and reward by the buyer. The seller can influence the equation, by managing the perceptions of the future risk and rewards, but at the end it is the buyer who determines the price they will pay. It is then up to the seller to accept or walk away.
Risk and reward are determined by the buyer as the assessment of future cash flow from the acquisition, together with any strategic benefit or cost advantages that may accrue.
Often when there is a disparity, there is an arrangement of an earnout period with KPI’s attached to payments.
This is in effect, a risk reduction strategy of the buyer, at the expense of the seller.
It is often the case in SME’s that the enterprise is apparently dependent in some way on a few individuals in the business, and their relationships with customers. The transfer of these relationships is often the key to the future cash flow.
However, it remains that an earn out is the buyers risk mitigation at the expense of the seller.
The seller may choose to take a lower price as an alternative and go sit under a palm tree rather than working in the business he/she previously owned.
Maximising the price for the seller therefore becomes a marketing task, completed prior to any detailed negotiations.
This is no different to tarting up your home before you put it on the market.
Your real estate agent will tell you to fix the fence, paint the interior, do a bit in the garden, make sure all the light fittings work, remove all the clutter to make the place look bigger, and perhaps rent some designer furniture to maximise the price. When selling your business, the advice will be similar.
Do a Due Diligence process for yourself. Anticipate every question that will be asked, and answer it before it is asked, thus removing it as a potential stumbling block.
It is never too early to polish the assets of the business, and work at reducing the liabilities, irrespective of whether or not it is on the market. You never know who might blow in for a look, and everything is for sale, for a price.
Why do SME owners with a valuable asset for sale so often ignore common sense advice?
Feb 11, 2021 | Change, Communication
Pretty obviously, ‘Free’ is the most powerful word in marketing. It is the best way to get people to trial a product, make the trial free, no risk, no commitment, no money. However, it is hard to make ‘free’ commercially sustainable.
The second most powerful word is ‘because’
‘Because’ gives people permission to do something they would not normally do, it provides the reason to change behaviour, it removes the discomfort of the change, we can always revert, we just did it this once ‘because…’
Next time you want to go to the front of the line in a supermarket, try asking politely, and using ‘because’ when you ask. The addition of some emotive reason after the because will increase the likelihood of an ‘OK’ even more.
E.g. ‘would you mind if I go in front of you‘ success rate about 20%
‘Would you mind if I go in front of you because I only have a few things” success rate about 40%
‘Would you mind if I went in front of you, because I only have a few things and my sick mother is waiting in the car‘ success rate about 80%.
Try it the next time you want someone to do something for you.
Header cartoon courtesy of Scott Adams, and Dilbert.
Feb 8, 2021 | Leadership, Management
From time to time we all must deal with those difficult people, the ones who believe absolutely in something that is clearly nonsense. They just know they are right, and are hellbent on ensuring that everyone else knows it.
I have learnt to feel sorry for them, although it did take the best part of 45 years to reach that point, from one of anger all those years ago, evolving into contempt, then progressively dismissing them as nutjobs, then ignoring them.
Occasionally I still fail, as in the case with Liberal MP Craig Kelly, whose ignorance combines with insistence that black is actually white, makes my blood boil.
However, these days, I recognise that their certainty of an outcome blinds them to the facts that might lead to a different conclusion, they become so wedded to their own narrative that any contrary suggestion is dismissed as irrelevant or insignificant.
When you believe you know everything about a topic, how can you learn?
You simply stop listening. We believe we have all the relevant ‘facts’, our analysis of those ‘facts’ delivers a conclusion that becomes, in our own mind, self-evident and absolute.
However, when you are a rabbit that believes there are no foxes around, you are destined to be fox shit.
Failure to recognise the holes in our own thinking makes us blind to an alternative.
The alternative of course, is that occasionally, just occasionally, the apparent nutjob has a point, but it is so far out of the current accepted narrative that he/she is dismissed and in times gone past, punished for those views.
Such a person was Ignaz Semmelweis. He was a Hungarian doctor working in the Vienna General hospital in the mid 1800’s. Semmelweis proved the massive incidence of infection in the obstetrics ward was caused by the practises of doctors. Despite having masses of confirming data, and publishing several papers and a book, he was rejected by the medical community, so aggressively, he ended having a nervous breakdown and being committed by his colleagues to an asylum for the insane. Unfortunately he died in the asylum about the time the medical profession recognised the truth he had spent his life and health trying to deliver.
In this case however, I do not think Craig Kelly is any sort of Ignaz Semmelweis, just a nutjob who needs to be put somewhere quiet and ignored.
Feb 1, 2021 | Customers, Marketing
I regularly see and hear people suggest that ‘thinking from first principles’ is a great thing, a foundation of success. Often when these people are flogging a product or service of some sort, their offering somehow becomes a function of a first principle.
‘This marketing automation stack is built from first principles‘ is a claim made by a vendor to an acquaintance who runs a modest but long-lived SME. The business is constrained by IT limitations of various types. A combination of lack of cash, underdeveloped understanding of the tools available and how they work both individually and together, and general wariness about florid claims about the returns that will arrive, magically, on installation,
What should we mean by ‘first principles’?
Aristotle defined it as ‘The first basis from which a thing is known’. Philosophers since have added their own wrinkles, but it comes down to the few single facts that provide the foundation of whatever idea you are considering. When you break a problem down to this level, it enables you to, sometimes, reassemble from a different set of possibilities, ideas from different fields, and end up with something new.
Thinking from first principles is challenging.
Our brains have evolved to reduce the cognitive load as a survival mechanism. Fight or flight must kick in quickly, automatically, just in case the rustle in the weeds is a sabre-toothed tiger. We therefore have mental models, or patterns we use unconsciously to classify things we see and set out to think about. Even when we set about thinking carefully, we are still subject to the mental models we have built up, the analogies and experiences we have that enable us to respond with the minimum of cognitive energy.
John Boyd used the evolution of the snowmobile as a demonstration of ‘First principles’. A snowmobile combines the body of a boat, the tracks of a tank, motor and controls of a motor bike, and skis, to deliver a machine that gives mobility on the snow. Similarly, Elon Musk used first principles to build his own rockets for SpaceX. He broke up a rocket into its component parts, then built his own rockets with parts sourced independently. Musk’s whole business empire is based on reimagining something and rebuilding from first principles. Arthur Conan Doyle via his character Sherlock Holmes, advocated the same approach. ‘When you have eliminated the impossible, whatever remains, however improbable, must be the truth‘. William of Ockham in the 14th century wrote similar words that have been passed down as the wisdom of Occam’s razor.
When you apply this thinking to marketing, and consideration of what it is that makes a successful business, you come down to one simple first principal.
Happy customers, who willingly and spontaneously refer you to others.
When you have happy customers, little else matters beyond a competitive capability to supply the product or service at a competitive price that returns an industry average gross margin.
What are the first principles of your business model?
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Jan 19, 2021 | Collaboration, Governance, Leadership
As we come to grips with remote working, we will also have to come to grips with the central challenge, of how do you create the sense of community and teamwork that requires face to face but is not as present in remote work.
More particularly, remote working groups that have a changing membership, often a rapidly changing membership.
Great sporting teams win because they have the right blend of talent to get the job done, then they practise and practice, and practice. What happens when the membership is not stable, when practice is not possible, simply because you cannot predict what it is that you need to be practising, and with whom.
Google has spent years and millions of dollars examining the characteristics that make groups successful. The starting point is that no Google employee is short of intelligence, otherwise, you simply do not work there, but some groups are extremely effective, and others are failures, when on paper, the group members appear remarkably similar.
They called it ‘Project Aristotle‘.
Google, if it has what we might call a core competence, it would be finding patterns in data. They have large data sets of the teams in their business, their makeup, demographically, ethnographically, education, experience, and so on, but they could find no correlation between all these variables, and the quality of the team output. It seemed almost random.
The problem was to identify how individual intelligence translated into group intelligence.
We seem to accept that teams that were working well are more productive, creative, and harmonious than those that do not, but we do not really recognise the drivers of those outcomes.
Eventually, an unexpected pattern emerged, that discriminated between high performing teams, and the others. The pattern had two characteristics of the interactions that occurred in the teams, that explained the performance differences.
Those behavioural patterns are:
Equality of conversational turn-taking.
When everyone in the team has the opportunity to speak, and is encouraged to take it, and the result is that team members hold the floor for roughly the same amount of time, the team works. It does not mean that everyone takes turns, it does mean that the culture and often unspoken norms of the group are that everyone is respected, and has value to be added to the conversation, and is therefore listened to equally.
Ostentatious listening.
Just speaking in roughly the same amount is not enough. Others in the group must be overtly and ostentatiously listening, taking in what is being said, and giving it the attention and thought it deserves. This particularly applies to the team leader.
Together, these two behavioural norms together create what risks becoming a cliché: ‘Psychological Safety’.
This is the willingness of team members to speak their mind, express opinions, and ideas, knowing that they will not be judged, that the group welcomes the views, even when they are against the ‘run of play’ or the expected. Psychological safety is the single greatest correlate with a group’s success. When team members have that safety, it unlocks their best ideas, their ability to collaborate meaningfully, and innovate creatively.
Contributing to the success of a team, on top of the two core drivers that deliver psychological safety, and contributing to them in meaningful ways, are 4 supporting behaviours.
- Team members get things done on time, and meet their obligations, in a manner that enables the team to perform its tasks to at least the standard they expect.
- Structure and clarity. Individual’s in the team have clear roles, plans and goals, and the decision-making processes the team uses are clear. When an individual’s goals and plans are aligned with those of the team, the impact is magnified.
- The work being done by the team is important to team members.
- Team members believe their work matters, and that it will create positive change.
Taking up the hard-won lessons from Google seems to make great sense to me.
How well do your processes to manage and leverage the intellectual capital, represented by your employees, work in the evolving working environments inspired by ‘The Bug?
Header credit: My thanks again to Scott Adams and his mate Dilbert.
