Big Banks Back in Small Business Market

  
In an amazing turnaround, at least one big bank (Chase) is back in the small business lending market. A Chief Executive Boards International member reported last week that he had secured a refinance on his building, described as a "blend and extend". They consolidated some other debt into the building mortgage, extened the term to a new 15-year amortization schedule at a competitive interest rate (5%) and charged fees around $500.

This is indeed good news, and a sea change in the banking market. For at least 2 years, small business has been welcome only at community banks - the big banks have been paralyzed.

So, if you need capital to expand your business and haven't shopped banks lately because you thought it was futile, it's a good time to put your package back together and go call on a half dozen or so bankers, both community banks and the big guys.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

 

Have it Your Way

  
Again this past week, I had a vendor of whom I'm a raving fan deliver just what I wanted, the way I wanted it. Rare, approaching non-existent.

In my experience, there are precious few vendors who are willing to do business the way I want to. Burger King, in a landmark set of commercials in 1986, coined the phrase, "Have it your way". Competing with rivals McDonald's, who offered a limited, "standard" menu at the time, this catchy jingle got them some traction in a crowded market space.

My experience was with a vendor I've stayed with for 15 years -- Dell. Realizing that your mileage may vary, my experience with Dell is that they're the "best of a mediocre lot" of computer hardware vendors. What I really like, though, is that they'll deliver support, even on hardware, the way I want it delivered.

This past week I had a keyboard failure on my Dell laptop -- a key fell off. Not a mission-critical problem that I couldn't work around, but a nuisance I needed fixed. I used their email support (important item - they offer a communications channel that doesn't require that I wait on the phone), requesting that if they sent me a keyboard, I would change it out myself. That process is made easier, because Dell posts Service Manuals for every system with "screw-by-screw" disassembly/assembly instructions, so I knew I'd have step-by-step instructions on swapping the keyboard.

They took my request, processed it and replied by email that my new keyboard was on the way. Total time expenditure on my part so far = 2 minutes. The keyboard arrived 2 days later.  I opened the Service Manual and discovered that the replacement process was about 5 minutes. So, with a total of about 10 minutes invested, I had a new keyboard in my Dell. No waiting on the phone, and most importantly, no waiting around for a service guy to come by for 5 minutes of work.

Granted, I'm not the typical Dell Customer. Over 15 years of experience, though, this has been more the rule than the exception -- I know what I need and Dell delivers it in a manner convenient to me.

So, how does your company's service delivery process compare to this? Do you let your customers "Have it their way"?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

 

What's My Business Worth?

  
There's an old saying among business brokers and firms that handle mergers and acquisitions:   

"You never want to be the first person who tells someone what his business is really worth"

Many business owners, including some Chief Executive Boards International members, have fanciful ideas about what someone might pay for their business. 

Here's a great article that lays out some realisic valuation parameters for several different kinds of businesses.    Note that all of them center around Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA).   That's calculated by taking your Net Income and adding back those items.   In the case of S-corps and LLCs, of course, you don't have taxes on your company's income statement.  

Actually, what buyers want to pay for is Net Cash Flow -- how much money will I be able to extract annually from this company if I own it?  At that point, it's purely a Return on Investment calculation -- an investment "interest rate", if you will.  A Net Cash Flow calculation would add/deduct from EBITDA to adjust for capital investment (uses cash) and changes in working capital (inventory, accounts payable, accounts receivable).  Hence "Cash is King" applies not only operationally, but in driving long-term company value, as well. 

The "multiples" referred to are actually the inverse of rates of return.  Think of buying a little "money machine" and paying a multiple of how much money it spits out each year.  The more you pay, the lower your rate of return per year.   Here's how that works:

Multiple of Annual Free Cash Flow (purchase price)	ROI% (Annual rate of return)
1	100%
2	50%
3	33%
4	25%
5	20%
6	17%
7	14%
8	13%
9	11%
10	10%

We hope this overview and the link above will be useful information in answering the question, "What's my business really worth?"  

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

 

You Never 'Splained It That Way Before

  
I heard a story, both amusing and valuable, at a Chief Executive Boards International meeting last week.   The topic?  Incentive Compensation. 

A member said he wanted to get customers to pay for a service agreement a full year in advance, versus quarter-by-quarter.   He said, "My sales people had all kinds of excuses about why that just couldn't be done -- customers had cash flow problems, purchasing had been instructed not to, etc.  That was until I changed the commission structure from 10% on quarterly payments to 12% on annual payments.  You know how many quarterly deals we had after that?"   He held up thumb and forefinger in a big "ZERO". 

If you know what you want -- exactly what you want, and figure out a way to pay for exactly that, you'll probably get your intended result from an incentive compensation system.  Otherwise, most incentive programs are just money poured into the economy through your payroll system. 

Here are 17 other articles on Incentive Compensation Systems. 

Got a great Incentive Compensation story?   Click "Comments" below and share it with others. 

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Hire Sales People in Pairs

  
A member of Chief Executive Boards International made a surprising statement in a recent meeting. He said, "I've taken to hiring sales people in pairs." Asked to explain, he went on to say that he had realized just how low the hit ratio is when hiring sales people. One good hire out of 3, 4 or 5 isn't atypical. So, while you have a candidate pool in front of you and your interviewing process all set up, why not hire both the front runner and the #2 candidate in your search?

In addition, it's not a whole lot more work to train two sales people in parallel vs. one. It surely does take twice as long to train two serially.

Not a bad idea, most members agreed. If you hit a home run with both, you have two new sales people, presumably coming up the sales production curve fast enough to at least pay for themselves. And if one of them turns out to be a bad hire, you have a fallback without the lost calendar time of re-starting and conducting a second search. Moreover, it gives you more clarity of decision-making on whether to cut your losses -- many times it's dreading the replacement process that keeps business owners and sales managers hopeful that, "Maybe she'll make it with a little more time."

The member who offered this idea said in his most recent experience it was the #1 guy who failed -- thankfully he had the #2 candidate already coming up the learning curve.

Think about it -- what would you have to lose by making your next sales hire a "tag team"? You either get 2 good sales people or you have a fallback plan if one fails.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Uncovering Unknown Unknowns

Don Rumsfeld, President Bush's "foot in mouth" Secretary of Defense, once said of the search for weapons of mass destruction in Iraq,

"There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know."

Pundits of the press panned Rumsfeld for this seemingly pedantic statement.

But there's something in there for the business owner or CEO -- it's the part that became the most difficult challenge of American policy in the Middle East, and of most businesses -- those pesky "unknown unknowns". It's not generally the situation you know about that trips you up. It's the one that comes of left field that you never expected -- the "unknown unknown".

How do you mitigate unknown unknowns? By changing them first into known unknowns -- things you know you don't know. And how do you do that? You find places where people with similar interests but different experiences than yours are willing to share their knowledge with you. You pay close attention to what they're talking about and continuously expand your list of known unknowns. Then you can go about making those into known knowns -- learning how the successes and failures of others could become your own successes and guarding against those failures others have taught you to look out for.

There are lots of ways to do that. Training, reading, networking, seminars and conferences.  One of the most effective is joining a Mastermind Group or Peer Advisory Group of people with similar interests and expertise. If your vocation is running a business, a CEO Peer Group like Chief Executive Boards International could well be your way of turning unknown unknowns first into known unknowns and then into known knowns. It's worked for thousands of other people -- why not yourself?

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

What's Inside Matters

Maytag's new TV campaign closes with the tagline "What's inside matters". That's not a bad mantra for hiring. Most hiring decisions (and most hiring mistakes) are the result of a misplaced focus on experience. Companies who consistently hire extraordinary people pay little attention to experience -- instead, they hire the person and teach the skills.

Think about it. When was the last time someone failed because they didn't have the technical skills to do the job? Chances are they failed because they didn't have the work ethic, the self-esteem, the emotional intelligence or the drive and ambition the job required. These are rarely taught. What you want to be looking for in a candidate are things like drive, ambition, determination, focus, self-esteem and the personal discipline to succeed. Native intelligence and emotional intelligence wouldn't hurt, either. You can teach the rest.

Of course, you do want people with the educational basics -- math, science, reading, spelling, etc. needed to learn the job skills. 

Chief Executive Boards International members report that, despite high unemployment statistics, there are precious few candidates out there that meet their hiring criteria. That being the case, "Hire the Person and Teach the Skills" is more important than ever.   Many CEBI members go on to say that some their "all time best" hires are people either right out of school or with just a few years' experience. 

What's your track record with hiring for experience vs. hiring for raw talent? 

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com