The Blog

#AxSAKnowledge (03/14/2017)

Pay attention to your business strategy and the culture of your organization. All too often, the best-laid plans can be inadequate for their practical environments, and culture ends up eating strategy for breakfast.

When decision-makers of a company, for example, try to integrate the dynamic team of an acquired company into their own staid troupe, the innovative nature of the newcomers usually becomes crippled and dies off.

As a manager implementing new strategies in your organization, you would do well to consider the following approach, in order to overcome cultural impediments within the organization:

— Survey the terrain
— Anticipate resistance, and identify those individuals and practices likely to pose the greatest challenge to new strategies
— Develop qualitative and quantitative metrics for measuring results
— Designate key personnel to lead the implementation of the new strategies
— Articulate your strategies and goals well enough to secure the buy-in of your team
— Get to work
— Evaluate feedback
— Deal swiftly with deficiencies
— Be adaptable, and make changes where necessary
— Stay on course, commit to best practices, and strive through your actions to succeed each day

(Photo taken from the AxSA video presentation to Startup Grind Johannesburg; April, 2015)
Read More

#AxSAKnowledge (08.13.2018)

Acquiring an existing business comes with some challenges. While the buyer is likely getting a talent pool and an established customer base, there is no guarantee that the target company will live up to its price tag. In fact, particularly when the valuation of the existing business is lofty, the buyer should consider using earnouts as a way to protect his or her interests in the transaction.
Essentially, with an earnouts, the buyer will pay only a portion of the purchase price for the existing business, while making the balance of the purchase price contingent on the future performance of the business. Consequently, the seller may receive the remainder of the price if revenue, market-share, and cost-control milestones are met.
Because this approach can get complicated, the buyer and seller are well-advised to clearly negotiate the performance milestones, and the metrics used to measure them, in advance of reaching an agreement, while also setting the terms for payouts and their timetables.
Read More

THE 4-1-1 ON EXECUTIVE COACHING

Written By Gary C. Harrell
Originally published 02 May 2017

Let’s begin this missive with one very plain thought: leaders need leaders. Even the best leaders among us are well-served to pursue outside counsel. And so, it is not uncommon for striving business professionals to seek the aid of a #mentor, advisor, or coach.

As we discussed in a recent missive, the world of executive #coaching has become a big #business. In fact, as a sector, executive coaching became a $1 Billion growth industry in 2014, and today, more and more organizations are working to pair their talented managers and team members with coaches, all in the common hope of spurring professional development, of improving performance and retention, and of bringing new ideas back into their organizations. So common has the practice of#executivecoaching become that nearly 6,000 individuals in North America, alone, identified themselves as “coaches” during a 2015 survey conducted by the International Coach Federation. Indeed, not to be outdone, as of 2016, even this consultancy offers AxSA Coaching Solutions for Business Professionals, a package of professional development tools and sessions designed for individuals, rather than for businesses. (We will talk more about that later.)

The goal of this missive is to unpack the murky industry that is executive coaching, in order to help would-be #clients of coaching services better understand what to expect. Rather than craft a long article, the best approach for disseminating this information is in Q&A segments – and so, let’s begin.

DOES COACHING REALLY WORK?
This is a perfectly legitimate question, particularly because hiring an executive coach can be a costly proposition. A would-be client is correct to pay attention to the value that any coach brings to the table. But as a whole, the industry flourishes for good reason. It gets results. According to a survey of 100 business executives, conducted by Manchester Review, executive coaching, where quantifiably tracked, produced double-digit improvements in areas like productivity, employee retention, quality, and organizational and professional development.

WHAT DO EXECUTIVE COACHES GENERALLY DO?
In the ideal engagement, the goal of an executive#coach is to leave the client better than he find him, while equipping the client with new tools for tackling the day-to-day world and meeting near- and long-term
objectives. In doing this, an executive coach would do the following:
• Identify and help the client to develop professional talents
• Act as a sounding board for ideas and concerns, while asking the type of probing questions that elicits thoughtful responses and actions
• Help the client to identify and address derailing behavior
• Evaluate and develop strategic career #goals and plans for #growth
• Coordinate priorities, help set goals, and develop measures for accountability
• Help the client to dissect and tackle difficult issues, both, at work and outside of work (Remember: one’s personal life does impact one’s professional performance.)

With all of that, coaches not only influence the behavior of the clients they engage. They also shape the client’s learning process, enabling the latter, in most cases, to think more objectively, creatively, and strategically.

WHERE DO EXECUTIVE COACHES COME FROM?
Finding an effective executive coach can be a challenging endeavor, particularly because the field is so ripe with individuals and groups claiming to provide such services. Executive #coaches come from a variety of sectors of the economy, such as#consulting, psychology, human resources, and the senior #management of disparate industries. Some even hail for the military and the world of sports and fitness. For would-be clients, it is important to know that an executive coach possesses both the acumen to lend the best advice. Therefore, knowledge and experience are both important.

To that end, coaches do not come cheaply. In fact, executive coaches – really good ones, more specifically – can charge clients anywhere from $200 per hour to as much as $3,500 per hour, as in the case of motivational speaker Tony Robbins. Consequently, it is important that a would-be client to get a good idea of what types of results can be expected, perhaps based upon the coach’s record, and have an understanding of the value to be delivered in the engagement.

IS THERE A PROCESS FOR EFFECTIVE BUSINESS COACHING?
There is no singular formula or approach for a successful coaching engagement. Nor should there be.

WHAT ARE THREE IMPORTANT POINTS TO REMEMBER ABOUT EVERY COACHING RELATIONSHIP?
(1) This is not about feeling good. A client is spending a handsome sum of money for objective insight and professional development. He cannot and should not expect an effective executive coach to placate him or enable him.
(2) Measurable results are everything… Unfortunately, the majority of coaching engagements do not provide quantitative feedback on a client’s progress. This is unacceptable. By not establishing the right type of metrics, there may be no way to link the coaching to improvements in professional performance or the harnessing of new skills… And how else would you be able to decipher value?
(3) Coaching should not go on indefinitely. In fact, the goal should be to build specific, new skill sets and enable the client to become self-reliant. Therefore, clear goals and a timetable for the coaching engagement are useful.

WHAT IS THE AxSA WAY?
The AxSA Coaching Solutions for Business Professionals is this consultancy’s own executive-coaching service package. While each coaching engagement is tailored to the client, we adhere to the same overarching approach, in order to ensure consistent results:
• Assessment
• Baseline survey
• Focal points – setting goals and timetables
• Monitoring through client sessions
• Intermittent surveys – gauging ongoing improvements and milestones
• Closing survey
• Engagement feedback

To learn more about AxSA’s executive-coaching service package, please contact us directly.

WHEN DOES COACHING NOT WORK EFFECTIVELY?
Coaching is not right for everyone, and under certain circumstances, a coaching engagement can be doomed before it ever really begins. Here are a few factors that can lead to a failed coaching engagement:
• A client who is too rigid and unwilling to explore new ideas is not entirely #teachable. All of the advice in the world is of little consequence to the man who refuses to hear it, process it, and apply it.
• A client who does not enter the engagement in good faith, or who is not honest about his circumstances or progress, will make for a difficult person with which to work. #Pride and dishonesty can have no place in an effort to make one a better version of himself.
• A client who harbors a toxic or negative disposition is problematic. If consistent, these bad thoughts really sour one’s mindset, and whereas thoughts impact feelings, #beliefs, and actions, there is a chance that such thoughts will also woefully cause the coaching engagement to fail.
• A client who is unwilling to own shortcomings or mistakes, or who projects onto others, is dealing with the same pride and egotism as those who are unteachable.
• A client who is unwilling to commit to the process, whether due to fear or laziness or “a lack of time”, will passively doom even the best effort. They are not ready.
• And of course, if clear goals are not set forth in the coaching engagement, the effort by both parties, the coach and the client, is really for naught. It is important to aspire for something and know, quite succinctly, what that something happens to be.

If #results matter, then Paul William Bryant is surely one of the best examples of effective coaching we will ever know. Usually just referred to as “Bear”, Mr. Bryant served as the head coach of the football program at the University of Alabama for twenty-five years. Naturally, as a coach, “Bear” was expected to lead his teams to victory, but he delivered in spades, with phenomenal consistency – 323 regular-season wins, 13 conference championships, and 6 national championships. To this day, the legacy of#BearBryant has helped to cement the University of Alabama’s reputation as a juggernaut among its peers on the football field.

Interestingly enough, though, despite being one of the greatest tacticians of America’s favorite pastime, the coach remained humble. “I’m no miracle man,” he said. “I guarantee nothing but hard work.” Such words epitomize the mark of a great coach.

As in football, an effective executive coach does not promise to make a client great. He promises, instead, to present the assignments necessary for a client to make himself great. The executive coach, much like “Bear”, stresses the importance of self-actualization on the part of the client. That is, he works to get the client to discover and activate for himself new #talents and ways of thinking. He also acts as a beacon for the client who must make practical these new traits in his daily routine. And he serves as a sober voice of support as the client conditions himself into a better and more promising version of himself. The executive coach guides; the client initiates and carries out the work. And as the results become more and more evident, therein lies the value of an effective coaching engagement – significant, lasting, and positive change.

#FromTheAxSANotebook

Gary C. Harrell is the founder and Managing Principal of Axiom Strategy Advisors, LLC. For more information about the consultancy, please visitaxiomstrategyadvisors.com.

©2017 All rights reserved; Axiom Strategy Advisors, LLC

Read More

AxSA ON FEAR

MANY PEOPLE HAVE DREAMS OF STARTING THEIR OWN BUSINESSES, BUT ALL TOO OFTEN, THOSE ASPIRATIONS ARE DASHED BY #FEAR. SO IS FEAR A REAL THING?

Underlying fears are typically the most prevalent culprits behind indecision, inaction, stagnation, regression, and so on. And interestingly enough, many would-be #entrepreneurs succumb to hard-driving emotions. Like anyone else, they, too, whether knowingly or unknowingly, hesitate or recoil at the crossroads to their destinies. That is why the words of noted evangelist #TDJakes ring true: “Fear is the assassin of greatness.” And so, the answer to the question is simple: in a world where perception is a greater force than reality, yes, fear is a very real thing.

In order to overcome or manage fear, it must first be understood for what it is. Many are unlikely to admit it, but fear is something that resides in each of us. It is an emotional response to stimuli that, in humans, travels through our neural circuitry from the parts of the #brain known as the #amygdala, and because this emotion is connected to the self-preservation instincts of every living organism, it would be fair to say that its existence dates back to the dawn of creation. In humans, fear is triggered when the amygdala recognizes threatening stimuli being collected by the body’s senses, which also happens to be sharing this information with the brain’s cortex. Detecting a threat, the amygdala can bypass the neocortex and prompts the body into action, even without a conscious impetus, quickly initiating an evaluation of the perceived threat and determining an appropriate response. There is little that the untrained mind can do; fear can strike out of nowhere. And just as literal threats can cause a rush of insurmountable fear, figurative ones like uncertainty can also cause ongoing bouts of anxiety and apprehension.

In his best-selling book #EmotionalIntelligence, Daniel Goleman wrote that we have two minds—one emotional, the other rational—and that, for the sake of a healthy life, the rational mind had to be in control. He described emotional intelligence (EQ) as the ability to “motivate and persist in the face of frustrations, to control impulses and delay gratification, to regulate one’s moods and keep distress from swamping the ability to think, [and] to empathize and to hope.” Goleman believed that people were too often collared by their emotional mind, but through EQ, they could learn to temper their emotional propensities and discover ways to grow. And where fear was concerned, Goleman acknowledged that it was possible to reshape the human response to threatening stimuli, by working to help individuals understand why they are afraid, redefine the stimuli that frightened them, and replace negative experiences of the past with new and positive ones. This process was called emotional relearning.

Such a psychotherapeutic approach to understanding and overcoming fear is also useful in the business world, where fear can undermine new ventures, cause the suppression of much-needed talent and ideas, upend change initiatives, and (worst still) strengthen corrupt or obsolete leadership. Every new entrepreneur has arrived at a crossroads with a degree of trepidation, as he or she gazed onto the dueling #possibilities of promise and of peril. But only those entrepreneurs with the capacity to identify and overcome their fears of failure (peril) have a better shot at success (promise) than, say, those who elect to stand there, or perhaps those who decide to take costly detours, or even those who decide to walk away entirely.

Here are a few thoughts on how an aspiring entrepreneurs can begin to understand and overcome the fears affecting his new ventures:

–Recognize that he is standing at the crossroads. Here, fear is a common emotion, and it is nothing for which anyone should be ashamed. As he starts to make this recognition, he can begin to understand what the fear is and how it is impacting his prospects.

–Develop a #vision of the other side. The entrepreneur should ask himself the question: if not for this emotional impediment, where could his dream be? Could it be brought into successfully fruition? An honest effort to answer this question will enable him to paint of picture of where he would like to take his venture. From there, he can set attainable benchmarks and #goals by which to transform that picture into reality.

–Know the real enemy. Many fears are based on inaccurate presumptions. As he begin to identify his fears, the entrepreneur should also make an effort to fully understand where they come from, and determine more accurately their levels of potency and validity. What he find may surprise you: many of these fears may be unfounded or simply based on erroneous information.

–Get help. There is no shame in admitting limits, and this is the reason that people in my field consistently tell entrepreneurs that they need BAIL (“bankers, accountants, insurance agents, and lawyers”), as well as very bright #businessconsultants, to help devise and navigate the course forward. These people, along with the members of the entrepreneur’s team, will complement his abilities and serve as a support system.

–Take that first step. Once he has an idea of where he is headed, the necessary resources, and a plan – yes, a #businessplan! – for getting there, he does not have to be afraid to go for it.

–Persevere. When the entrepreneur confronts what should be fearful moments – and he will – the typical biological impulses may surface. Nevertheless, he must have confidence, and he should trust his rational mind, as well as his support system, to get him through the anxiety.

–Know that everything is temporal. Today’s times of challenge are tomorrow’s moments of #triumph. The entrepreneur must remember that what he faces today, if encountered effectively, can help to propel him forward, where undoubtedly, he will face a whole new set of challenges and where he may have to identify different types of fears. With any luck, though, the lessons learned from today will prepare him for much of what is further down the road.

 

Gary C. Harrell, the author of this piece, is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write info@axiomstrategyadvisors.com.

©2015 All rights reserved; Axiom Strategy Advisors, LLC

Read More

THE TURNAROUND MANAGER

By Gary C. Harrell

 

Today let’s talk about turnarounds, with a look at leadership, particularly the leadership recruited to salvage troubled enterprises, both big and small.

 

When an enterprise finds itself facing an uncommon and worsening situation, the stakeholders of that enterprise traditionally must come to terms with reality. They might be hesitant to admit it, but their current management, though not for trying, may not be well-suited to reverse the course of a downturn. Consequently, with this realization, the stakeholders must look outside of their enterprise for help. The people to whom these stakeholders ultimately relinquish the reins of power are known as turnaround managers.

 

Most people in the general public have a preconceived and quite skewed notion about the practice of turnaround management. For starters, they believe that turnaround managers are ruthless and uncaring individuals, marching through enterprises like marauders in business suits. The general public also assumes that the use of turnaround managers is restricted to large enterprises. Quite to the contrary, however, most turnaround managers are not raiders, and their work is not limited to the big corporations. These managers, in truth, embed themselves into an enterprise, mostly on a full-time basis, actively managing the operations of that enterprise to produce much-needed growth, and they typically tie their compensation to the improved performance of that enterprise. A turnaround manager does not have the luxury of behaving like Gordon Gecko; the manager actually has to get his hands dirty, one enterprise at a time. What’s more, turnaround-management services abound for every stripe and size of enterprise. In fact, a whole cottage industry exists that provides services to struggling, early-stage and young enterprises, and among the providers in this sector is…well, need we say more?

 

Any turnaround can be a challenge to even the most seasoned manager, and there is no singular protocol for encountering every enterprise in a downturn. Indeed, the circumstances facing troubled enterprises vary from one to the next, and for that reason, a manager might find himself confronting a substantial and underserviced debt portfolio in one case, while the paramount issue might be a dated and inefficient facilities in another. That said, however, there is a broader roadmap for all managers to consider when preparing to undertake such efforts. This roadmap helps to move managers into the proper frame of mind, in order to achieve the most optimal results from whatever strategy he elects to deploy. Here are a few points from that roadmap:

 

  • Perform comprehensive intelligence. As the turnaround manager enters the troubled enterprise, he must do so not ready to act, but to learn. The manager must begin his work by gaining a clear understanding of the situation affecting the enterprise. He must study its current strategy, as well as its operational structure and capacity, and he must also learn as much as he can about the offerings and the pipeline for new offerings, the technology and systems used to make and deliver those offerings, and the competitive environment in which those offerings are sold. Much of this information needs to come in form of data points, but he must rely also on interviews and conversations with his immediate subordinates, the stakeholders, and key personnel. And before he goes further, he has to develop a keen understanding of just how the current strategy, along with other factors, contributed to the hardship of the enterprise. He should do this if for no other reason than to avoid prescribing and making the same mistakes as his predecessors.
  • Analyze the information. After all of the intelligence is gathered, and as the analysis begins, the manager must remember that some parts of what he has learned might be inaccurate or invalid information. After all, the current structure and its flawed strategy were in place and likely contributed to the downturn. For that reason, he must be very judicious about the use of the information from his fact-finding exercise, and he must not hesitate to dismiss anything that does not seem consistent with other portions of those facts or his own understanding.
  • Set transitional priorities. From his findings, the manager must begin to develop a new strategy for the enterprise, one that is designed to reinvigorate, and one that is detailed in the numerous pages of a strategic plan, a restructuring plan, a new operational model, a working timetable, a Plan for Growth, and so on. This new strategy must address any cultural and operational impediments of the enterprise that the manager identified during his fact-finding exercise, and it must give a vision of what the enterprise will look like and how it will operate going forward. More specifically, the strategy should set new, measurable goals for every area of the enterprise, and these goals should begin to produce marked results over the first twelve months and far into the following year. Making these goals clear to the stakeholders, and securing their buy-in, is an important step for creating the formulaic system by which the manager’s own performance can be fairly measure. (To be sure, some stakeholders might demand faster results in the first year, but a rational manager should remain steadfast, reminding those stakeholders that, since it did not take the enterprise a few short months to nearly collapse, it would be imprudent to think that corrective action might yield serious results in such a short time.)
  • Establish a turnaround team. Once the manager has corralled the support of the stakeholders, he must act quickly to institute his changes to the enterprise. This, he cannot do on his own; he will need a team. But before he starts hiring, he must start firing. The manager must purge the organization of its weaker personnel and those likely to resist the imposition of the new strategy, as both types of individuals would only be laggards in a new and more challenging environment. As the majority of the dismissals occur, the manager must begin to install his new team of leaders. It is important to understand that, while a few leaders might be carried over from the old management structure or promoted up from the rank and file, it is more common for a manager to hire from outside of the enterprise (if he has been afford such latitude by the stakeholders). The two overarching reasons for this effort are simple: he is seeking new and diverse ideas not readily found in the current talent pool, and he is hoping to transform the operational expectations and the general culture of the enterprise in a meaningful way.
  • Articulate the changes and expectations to the enterprise. People increasingly understand that change is the only true constant, but that does not mean that they will easily accept it or not be confused by it. This is especially true in the manager’s enterprise, where a whirlwind of dismissals and new hires, to say little of wholesale divestitures, promise to reshape everything, while leaving personnel to wonder how they fit into this equation. For this reason, the manager and his new turnaround team must act quickly to bring the personnel up to speed on what these changes means and how they will impact their work. The new leaders of the enterprise must demonstrate thoughtful and decisive leadership, articulating in clear terms the new vision for the enterprise and, from there, sharing with each work group and employee what is expected of them. The new leaders must secure buy-in from the personnel, as well, and where there is not any, find replacements. Then they must avail to the personnel avenues for short- and near-term feedback. Opening immediate channel for communication is a good approach, because the manager must assure that the goals of his strategy are being met and, if they are not, make corrections where necessary.
  • Score early victories. This can mean nearly anything, from restructuring debt to securing new financing to successfully winding down costly operations. Through small achievements, the manager and his turnaround team can act to demonstrate that their strategy is viable, and they can maintain the necessary support to go forward. To that end, though, it is understandable that larger goals may not be fully accomplished for some time. Nevertheless, the manager can still claim early victories. That is because, while the manager’s overall strategy is made measured by goals, the progress made in achieving those goals can be quantified by benchmarks. In goal-fulfillment, these benchmarks represent reference points by which the performance of the enterprise, its manager, and his turnaround team can also be evaluated over time. Therefore, it is necessary for the manager to report this progress to the stakeholders, in order to maintain their support for the strategy, and to the personnel, in order to bolster their commitment for achieving the goals.

 

In a troubled enterprise, turnaround management can make the difference, forestalling an untimely demise and restoring the prospects for growth. Of course, even renewal takes time, but with a competent team and the right strategic mix of options, most enterprises can be pulled back from the brink, if the turnaround team is permitted to act quickly enough. In order for that to happen, though, before all else, the stakeholders of a troubled enterprise have to admit to themselves and to their current managers that they need help from outside. Such an admission never comes easily—but, alas, overcoming prideful decision-making is a subject for a different time.

© 2010. All Rights Reserved; Axiom Strategy Advisors, LLC. Reproduction and unauthorized use are strictly prohibited.

Gary C. Harrell is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write info@axiomstrategyadvisors.com.

Read More

A PRIMER ON TRADE CREDIT INSURANCE

By Gary C. Harrell

#AxSAKnowledge

 

For a small business, expanding into new markets can be an exciting time. This is particularly true when the new market is a foreign one. But, for all the excitement, a great amount of attention must be given to the way in which products are traded, promoted, and placed in these foreign markets. One misstep, one detail overlooked, can result in lost goods, non-payment from buyers, compromised intellectual property, or even reputational risks. Therefore, managing every stage of the export process is critical.

 

When it comes to safeguarding a business against the risk of non-payment, an entrepreneur-cum-exporter should consider trade credit insurance. This type of coverage is used by businesses of every category and size, and though only three percent of exporters used it in 2016, recent political events like Brexit, trade difficulties between the United States and China, and a swathe of business failures is making the coverage more popular. In fact, many banks increasingly require export receivables to be insured if such receivables are to be considered as collateral for credit lines.

 

Contingent on the breadth of coverage selected by the exporter, trade credit insurance policies may cover between 60% and 95% of the debt owed by a foreign buyer, if such coverage applies to specified circumstances resulting in the buyer’s non-payment, i.e., political instability or business failure. For this reason, it is advantageous for an exporter to seriously consider the risks posed, both, by the buyer and in the buyer’s market, before selecting the appropriate coverage for the transaction. What’s more, unlike most other types of coverage that policyholder put aside until they must be used, with trade credit insurance, the exporter must report to the insurer as the first shipment of goods or services is dispatched to the buyer; the exporters must commence the payment of premiums; and the exporter must remain in regular communication with the insurer.

 

While private insurers do offer trade credit insurance to well-heeled exporters, a good number of them do not make the coverage available to small businesses. For this reason, the Export-Import Bank of the United States has stepped into the gap, providing coverage in areas deemed too risky by private insurers. Of course, though, there are a few restrictions when using the EXIM Bank:

  • The business must have at least one year of operational history.
  • The business must have at least one full-time employee.
  • The business (and, in many cases, its owner(s)) must have a positive net worth.
  • Fifty percent or more of the costs of the contents of the goods or services to be shipped must originate in the United States. (This can also include indirect costs such as labor or administrative costs.)
  • All goods must be shipped to their destination countries from U.S. ports.
  • Goods and services must only be shipped to eligible countries.
  • The goods typically cannot be inclusive of arms or munitions for military, commercial, or civilian uses, unless the “dual use” of such goods can be clarified and approved prior to their sale.

 

Entering foreign markets can be an exciting time for a small business owner, because doing so can mean the growth of a brand and the diversification of revenue. But foreign markets come with their own set of challenges, and those are not limited to languages, topography, logistics, laws, customs, or tastes. Managing these risks requires a comprehensive understanding of the new market and proper preparation for exporting to it – not simply a casual desire to do so. Trade credit insurance is but one many facet of that preparation, and it can be a useful and reassuring tool for helping new exporters reduce possible risks in unfamiliar markets.

 

#                             #                             #                             #

 

Gary C. Harrell is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write info@axiomstrategyadvisors.com.

© 2018. All rights reserved; Axiom Strategy Advisors, LLC.

Read More

THE 4-1-1 ON EQUITY CROWDFUNDING

Written by Gary C. Harrell
25 June 2016

 

The rules governing the way Axiom Strategy Advisors and other intermediaries raise capital have changed in both substantive and procedural ways. For years now, this consultancy has worked in the deal-making space, helping to raise much-needed equity capital for many businesses. The bulk of that financing – that is to say, the financing that had not been secured from close angel investors, or from the friends and families of the entrepreneurs – had come from either institutions or accredited investors. The latter investor type, accredited investors, are those individuals or married couples with a net worth in excess of $1 million. In accordance with old rules, those were the only players in the game. Intermediaries shopping private placements, or making public offerings, were not permitted to market startup equities to, or raise funds from, non-accredited investors, the other 98% of folks. Now things are different.

 

In 2012, passage of the Jumpstart Our Business Startups Act (commonly known as the “JOBS Act”) set the stage for how small businesses and their solicitors could raise equity investments from the non-accredited, alongside the more affluent investors, and in its own effort to protect this new class of investors from unnecessary risks, the Securities & Exchange Commission crafted a series of new rules and procedures that took effect over recent weeks.

 

This primer is intended to make clear for our clients the new landscape of equity crowdfunding, as well as to offer cursory guidance on how fundraising, hereinafter, will be carried out.

 

Let’s start with the basics.

 

The new rules set in place by the SEC will allow a small business to raise as much as $1 Million over a twelve-month funding period, and those same rules do open a wide door for non-accredited investors to take part in these fundraising opportunities. Nevertheless, the decision-makers in these small businesses and their intermediaries must remain mindful that these opportunities cannot be initiated without a good share of paperwork, mandatory disclosures and filings, and upfront expenses. What’s more, these fundraising opportunities are subject to scrutiny based on the oversight provided by the SEC and FINRA. Consequently, every effort must be made to work within the parameters given.

 

What you should know:

  • Title III of the JOBS Act does allow small businesses to solicit equity crowdfunding from non-accredited investors over a fundraising-campaign period. That period is twelve months, based on the SEC rules.
    • The maximum amount of capital a company can raise, based on these rules, is $1 Million over the fundraising campaign.
    • Companies seeking to raise funds from non-accredited investors are restricted to no more than 500 non-accredited investors. Should the number of non-accredited investors exceed this threshold, the SEC will require that the company go public. Also, any Title IIIcompany with assets of more than $25 Million will be required to go public. (Taking a business public is a topic for a different memo.)
    • Non-accredited investors are allowed to invest between $2,000 and $100,000 in a Title III company during its fundraising campaign.
    • In order to raise funds during the twelve-month period, a small business eligible for a Title III designation can only use two intermediary platforms to make solicitations. First, a company can retain a broker-dealer, like Axiom Strategy Advisors, which is a FINRA-registered group or individual who, among other services, structures the offering, drafts all necessary investment and marketing documentation, and provides investment-management services during the fundraising campaign, while also working with and securing investors. Alternatively, a company can utilize a funding portal, which acts as an independent clearinghouse, whereupon startups can be matched with prospective investors, after they have upload all proper documentation about their company and the offering. (Unlike broker-dealers, funding portals, by law, cannot insert themselves into the deal-making process. They do not structure or draft the offering documentation, and they cannot help to identify investors or to lend advice.)
    • There must be a 21-day “cooling off” period for prospective investors. That is, the Title III company and its solicitors must wait no less than this period before closing any investment pledge made during the fundraising campaign.

 

The procedure for initiating equity crowdfunding:

  • First, the intermediary is required to conduct thorough background checks on the decision-makers of the company, as well as perform audits of the operations and financials of the company, in order to verify that there are no irregularities.
    • The broker-dealeror lawyers for the company must prepare the proper offering documentation for the fundraising campaign. These materials are inclusive of, but not limited to, business plans, offering memorandums, subscription agreements, operating agreements, and so on.
    • The intermediary must file a Form C with the SEC, announcing plans to raise capital under the Title III designation.
    • It is imperative to remember that, at no point, can the company’s decision-makers or its intermediaries promote the fundraising campaign before the campaign actually commences!
    • Once the nod is given by the SEC, the Title III company can commence the fundraising campaign over the approved period of time.
    • The intermediary or representatives of the company must provide regular updates on fundraising efforts to the SEC, in addition to making these updates readily available on the company’s website.

 

For any investor, identifying start-up businesses with a strong likelihood of success is not an easy endeavor. Even venture capitalists, the most seasoned of all startup investors, encounter high failure rates – as many as 3 of every 4 VC-backed companies. On a larger scale, according to Bloomberg, 80% of all new businesses end up shuttered. Consequently, the chances of a non-accredited investor identifying and investing early in the next big real-estate deal, Google, Amgen, or Panera Bread could be quite slim. Nonetheless, should a non-accredited investor never have had the opportunity to identify and invest in such opportunities, then the chances of being part of something great would have surely been nonexistent.

 

The SEC has established a framework, however stringent, by which equity crowdfunding can be made a meaningful conduit for investment. Still, the onus is on the investor. It is important that non-accredited investors, much like their more affluent counterparts, give very careful and informed consideration to any opportunity before them, by conducting thorough research and due diligence of their own. Spotting a bad investment early on can save an investor thousands of dollars and many regrets. And by that same token, it is important for Axiom Strategy Advisors to use these new rules to deliver to the market only those opportunities worthy of investor’s hard-earned money.

 

# # #

 

Gary C. Harrell is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write gcharrell@axiomstrategyadvisors.com.

© 2016. All rights reserved; Axiom Strategy Advisors, LLC.

Read More

“Own the Moment”

Renowned public speaker Simon T. Bailey’s cogent words from 2014 will leave you highly motivated today.

 

 

Read More

A CRASH COURSE ON CHINA’S YUAN

From the AxSA Staff

#AxSAKnowledge 

As a trade war looms between the United States and China, the news out of Beijing is particularly interesting. Officials with the People’s Bank of China acknowledged that they are considering a devaluation of the yuan (or the renminbi (RMB)), in an effort to stymie the impact of the Trump tariffs on their exports to the United States. The strategy is mystifying, and if it actually executed, it just might work for them.

 

To call China a trade giant is an understatement. It is actually a trade behemoth that manipulates masterfully (more on the latter point in a second), exporting over $2 trillion dollars in goods and services globally. Consumer, commercial, and industrial markets in the United States, of course, make up significant destinations for those exports. In fact, sticky geopolitics notwithstanding, the United States and China share a pretty robust trade relationship. In 2016, trade between the two countries totaled nearly $650 billion. And, yes, for that same year, China did benefit from a roughly $385 billion trade surplus, relative to the total value of goods and services exported to China from the U.S.

Part of what gives China its major advantage when it comes to trade is the low cost of production. Businesses look to a number of considerations when choosing where to manufacture their goods: a stable political and economic environment; access to capital markets; a viable infrastructure; a competent workforce; and reasonably low costs to doing business. To that end, China stepped up its game – and it did so quickly. In 1990, China produced less than 3% of world’s manufactured goods, but now its output is more than one quarter of that. Decision-makers have been drawn to China for all of the typical considerations – but, most importantly, because of the low costs. And this is so, despite China’s spotty record on human rights, its murky rule of law (if you can even call it that), and even its laxed enforcement of intellectual-property rights.
So how has China kept the costs of doing business there down so significantly? Well, we can answer that question in two unflattering words – currency manipulation.

The yuan, China’s currency, is pegged to a basket (or formula) of 13 major currencies, with the U.S. dollar now representing just under 25% of the weight of its basket. In order to remain an attract destination for the production of goods, the Chinese smartly realized that it had to keep, both, its currency from appreciating in value and its economy from freely heating up as a consequence of all of this new business.

 

The strategy that China uses to maintain some control is often referred to as the “impossible trinity”. No country can have free capital flows in its economy, a fixed exchange rate, and control of its monetary policy, at all times. China enforces strict capital controls in its economy. For example, citizens of China and ex-pats working there cannot freely exchange their yuan for any foreign currencies. And that is an important fact to remember when you think of the Chinese consumer, who is not spending much of the money that he has earned after working long hours in that demanding economy. (Even if you hear a lot of glamorous stories about young Chinese splurging on European cars or pricey flats, just know that it’s not everyone. In fact, the Gross Savings Rate as a percentage of China’s GDP is 50%, making the average Chinese household far, far more frugal than its American counterpart.) Consequently, as the people of China save more and more, that money gets invested into more projects (like real estate) and production capacity, even beyond what is necessary to meet domestic demand. In the beginning, much of that money went into building factories, and those factories exported their excess production to markets willing to receive cheaper goods, thus creating the types of trade surpluses that we now see with the United States and the European Union.

The trade surpluses also create another phenomenon – the rabid accumulation of foreign reserves. China should naturally be awash with money from foreign businesses and consumers, and under normal circumstances, that money should have help to fuel an sharp appreciation in the value of the yuan. But to manage this phenomenon, the China government has made a practice of stepping in. The People’s Bank of China routinely prints an ever-greater supplies of yuan to buy up the foreign reserves and control the exchange rate. Price controls and bank lending restrictions are commonly implemented as ways of governing growth in its domestic markets.
Up until the middle of this decade, China was the fastest-growing economy on the planet, with annual upticks in GDP of 10% or greater. But all of that money could not go into building new factories. After all, global markets were only so big, and Chinese officials knew that they could only allow the outcry against their trade dominance to get so loud. Hence, China followed its impossible, but seemingly successful, trinity with other forms of global activity. For example, in order to maintain its penchant for trade-led growth, China’s central bank dabbles in foreign currency markets daily, taking significant positions in currencies like the dollar, in order to keep those currencies higher in value to the yuan, and it follows up its intervention into those markets with the issuance of bonds, so as to prevent the domestic money supply from increasing too significantly. Those positions don’t just sit idle; China puts its foreign reserves to work. In the case of the dollar (the world’s reserve currency), China uses it when making oil or other commodity purchases in the Middle East or in other developing countries. It also uses those dollars to make substantial project investments around the world, like its audacious Belt & Road Initiative, which would be the largest inter-modal system spanning three continents, and it uses those dollars to routinely buy U.S. treasuries, which is, quite frankly, the most sensible way for China to hold most of its dollar reserves, now standing over $3 trillion, as of February, 2018.
China has proven itself masterful at a game that goes beyond simply shipping goods across oceans, and it would be reasonable for even the casual observer to believe that China does not plan to lose any trade war that President Trump has initiated. By devaluing the yuan – a readjustment of its peg to other currencies – China could essentially be giving exporters a subsidy that undermines the Trump tariffs, and in the process, it would do little to no damage to its own well-managed, domestic economy. Conversely, the same practice could not be used by the United States to usurp China’s retaliatory tariffs.
The best solution, at this point, is not to ratchet up tensions with talk of new tariffs. Indeed, barriers create more barriers, and once instituted, they will be difficult to bring down. No, this best solution is for the more pragmatic members of the Trump administration to work with the Chinese, if necessary, through quiet channels, in order to save face and resolve this matter. After all, no one wants a trade war that will only drain millions from the American middle class and put our two countries on an adversarial path. The reality is that United States and China, though some are reluctant to admit it, are interdependent on one another. It is time that we all begin to act like it.
(c) 2018, Axiom Strategy Advisors, LLC. All rights reserved.
Read More

DIVERSITY MATTERS – AND HERE’S HOW YOU CAN MAKE IT WORK

By the AxSA Staff

14 November 2017

The best-performing and most adaptive businesses are typically very diverse ones. That is because #organizations that make diversity an integral part of their #culture benefit greatly from a freer flow of ideas, while also operating in more open and exploratory ways. These diverse businesses do a better job at strategic thinking, trendspotting, problem-solving, structuring opportunities, and even identifying and managing risks, largely because #groupthink does not narrow the judgment of their leaders.

Unfortunately, for so many smaller businesses and their #decisionmakers, embracing the notion of #diversity can be daunting, if only because a diverse talent pool can rattle the current #workplace culture and unsettle the perspective of staid #managers.

“We weren’t ready,” explained an AxSA who requested to be unnamed. Though the business manager wanted to protect her anonymity, she agreed to allow use of her story for the purposes of this missive. Her family-owned restaurant hired its first outside manager – a middle-aged, white male with ten years of experience – in 2012. Almost immediately, there were problems. “You would have thought that being people of color or people who knew something about prejudice, we would have been more accepting, but what happened exposed a lot of prejudice, both, in our ownership and in our staff.” That manager lasted only eight months, and quit following a racially-charged argument with another worker in the kitchen. An EEOC complaint followed quickly.

Decision-makers hoping to make diversity work to their advantage must start with the right mindset, lest a faulty attempt at diversity can have negative consequences. Here are some pointers:

○ Dispense with preconceived ideas, and keep an open mind
○ Seek out the most qualified candidates for job positions, ideally, from the start of the business
○ Create a culture of inclusion and mutual respect
○ Encourage openness, #teamwork, and the exchange of ideas
○ Actively mediate clashes based on cultural assumptions, and make clear that the company frowns on intolerance
○ Acknowledge that others might have good ideas that differ from your own
○ Be patient, and listen to those who might express their ideas in unfamiliar accents or styles

Contention often prompts decision-makers to think that diversity initiatives may not be worth the headache, but a diverse workplace demonstrates a significant degree of managerial and cultural maturity. And that diversity can bring benefits. For one thing, it resists conformity and encourages new #ideas in a time when creativity, innovation, and #performance shape the success of every #business.

Read More
arrow_upward