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 firstname.lastname@example.org.
By Gary C. Harrell
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.
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Gary C. Harrell is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write email@example.com.
© 2018. All rights reserved; Axiom Strategy Advisors, LLC.
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.
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Gary C. Harrell is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write firstname.lastname@example.org.
© 2016. All rights reserved; Axiom Strategy Advisors, LLC.