Author: Tom Koor

Tom Koor

Traditional corporate governance dooms your company to failure. V2

Traditional corporate governance dooms your company to failure. V2

 What is the purpose of this article?

Help shareholders, investors, founders, the board of directors and C-Suite discuss and improve corporate governance.

You can download a PDF of this article from: Traditional corporate governance dooms your company to failure. V2

What are the critical learnings in this article?

  • You need to have a common understand about the purpose and value of governance.
  • You must focus governance on value creation and the ability to survive crisis.
  • You need talent that is qualified to make decisions which result in value creation and enable surviving a crisis. This talent must be supported by processes and technology.

What are some definitions of corporate governance?

#1 “Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community.

Since corporate governance provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure”1

#2 The Globe and Mail Board Games survey of corporate governance produces a score of a company’s governance based on 38 sets of criteria in 4 areas: 2

  • Board Composition
  • Shareholding and compensation
  • Shareholder rights
  • Disclosure

#3 OSFI (Office of the Superintendent of Financial Institutions), the Canadian Federal Government Regulator of Financial Institutions, has published its guidelines.  There are 4 major areas:3

  • The Board of Directors
  • Risk Governance
  • The role of the Audit Committee
  • Risk Appetite Framework

#4 Law firms often discuss corporate governance in terms of government laws, regulations, and court rulings.

What are the fatal flaws with many approaches to corporate governance?

  • The focus is on the processes and the degree to which processes are carried out. The impact on profitability and value creation for members of the company’s ecosystem has little or no consideration. Two examples; a) a company could score very highly on the Globe and Mail Board Games, while at the same time losing market share and shrinking profits. b) Facebook has transformed the world and generated enormous profits, while not being a great example of corporate governance.
  • Talent requirements often have little or no consideration in corporate governance. Competitively differentiated talent is the key to the company’s value creation for ecosystem members and for the company’s very survival.  The talent criteria and talent assessment of board directors and the C-Suite often have a limited role in corporate governance.
  • Following all the laws, regulations, and court filings do not result in large numbers of cash paying customers.  Many rapidly growing companies are in areas with limited laws etc.  Innovation often is far ahead of government regulation.
  • Corporate governance objectives and practices in a public company with no controlling shareholders are very different from those with a controlling shareholder or in private companies, especially those with unanimous shareholder agreements.
  • The traditional concept of a skills matrix for board directors is obsolete. Early-stage companies, Venture Capitalists, and Private Equity seek directors who are able to enable value creation.  g., I was in a meeting when a director asked if they were going to be nominated for another year.  The response was “what value are you going to provide next year?” A value creation matrix (formal or informal) is being used by companies focused on value creation.
  • Leaders get confused about their roles i.e. the degree to which they coach and mentor talent vs make decisions about talent. g., some board directors attempt to coach and mentor the CEO. It then become difficult to challenge the CEOs recommendations when the directors were involved in the creation of the recommendations.
  • Corporate governance is often focused only on the board of directors and C-Suite. Corporate governance is much broader than that.
  • The skills and experience necessary to make decisions is unclear. g. some governance advisors believe that no skills and experience are required when voting on whether to appoint a CEO or terminate a CEO.  The advisors cite the example of U.S. Congress or Canadian Parliament, where no skills or experience are required for any vote by any member.  Other advisors use the example of the Supreme Court, wh,ere every single justice must have the skill and experience to vote on every decision.
  • The competitive differentiation of the board of directors is often ignored. It is challenging to have a competitively differentiated company without a competitively differentiated board.
  • There is no clearly defined link, and common understanding, of how corporate governance specifically enables your company’s long-term value creation and ability to survive crisis.

 

What are your next steps?

  • Read “Is your company planning to fail?”4 I observe that most companies are successfully executing their plans to fail.
  • Agree upon the purpose of your company.
  • Agree upon your company’s definition of governance and the purpose of governance.
  • Assess your company components (talent, knowledge, processes, technology) relative to your definition of governance and the purpose of governance. This assessment includes the board of directors and C-Suite.
  • Prepare your plan to improve governance.

Footnotes

1 Investopedia 2022 August 22

https://www.investopedia.com/terms/c/corporategovernance.asp

2 Globe and Mail Board Games – 2022 August 222

https://www.theglobeandmail.com/business/careers/management/board-games/article-article-canada-corporate-boards-ranked-2021/

3 Office of the Superintendent of Financial Institutions – Corporate Governance – Sound Business and Financial Practices – September 2018

https://www.osfi-bsif.gc.ca/eng/docs/cg_guideline.pdf

4 Is your company planning to fail? Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

What further reading should you do?

  • What is the purpose of your company?

https://koorandassociates.org/corporate-governance/what-is-the-purpose-of-your-company/

  • What is corporate governance?

https://koorandassociates.org/corporate-governance/what-is-corporate-governance/

  • What is a competitively differentiated board of directors?

https://koorandassociates.org/corporate-governance/what-is-a-competitively-differentiated-board-of-directors/

  • What are the decision-making challenges faced by directors?

https://koorandassociates.org/corporate-governance/what-are-the-decision-making-challenges-faced-by-directors/

  • How can the board of directors create value?

https://koorandassociates.org/corporate-governance/how-can-the-board-of-directors-create-value/

  • What are the core components of talent?

https://koorandassociates.org/creating-business-value/core-components-of-talent/

Tom Koor

Do you need to transform your company? V3

What is the purpose of this article?

Enable the board of directors, C-Suite, investors, and founders to understand whether there is a need to transform the company.

You can download a PDF of this article from: Do you need to transform your company V3

What are the critical learnings in this article?

  • Many business leaders think that they need to change the direction of their company, in order to be financially viable.
  • Company profitability will be impacted by external factors.
  • Lack of trust in the company impacts profitability.
  • Often the board of directors and C-Suite do not know that their company is in crisis or heading toward crisis.

How did 4,410 in 2022 CEOs think about the need to transform?1

  • 39% don’t think their companies will be economically viable a decade from now if they continue on their current path
  • 49% believe the following will impact profitability in the next 10 years: Changing customer demand, regulator changes, talent shortages, technology disruption.
  • CEOs currently spend 53% of their time driving operating performance and 47% evolving the business to meet future demands. CEOs believe the ideal should be 57% of their time on future demands.
  • 43% of CEOs said their leaders don’t often encourage debate and dissent. 53% said their leaders don’t often tolerate small-scale failures.
  • Less than 30% of companies collaborate with external ecosystem members (to a large or very large extent), in order to create business value. Less than 20% of companies collaborate with external ecosystem members (to a large or very large extent), in order to address societal issues.

What did the analysis of 4,446 CEOs in 2021 reveal about the impact of consumer trust?2

  • Consumer trust and company performance are linked. Consumer trust is the second biggest determinate of performance variance, after industry conditions.

Most business leaders have little understanding of their consumers. 87% of business leaders said consumers highly trust their company.  30% of consumers said they highly trust.

 What are the symptoms of a need for transformation?

The obvious facts demonstrate that the company is in crisis. E.g.

  • Losing customers or losing market share. Net Promotor Scores dropping.  Customer churn increasing and customer retention decreasing. The lifetime value of customers is exceeding customer acquisition costs.
  • Benchmarked performance is poor compared to competition.
  • Debt and interest payments are causing major losses and negative free cash flow. The company is profitable with positive free cash flow, if debt and interest payments are not considered.
  • The company is unprofitable with negative free cash flow, even if debt and interest payments are not considered.
  • Employee turnover is unacceptable.
  • Employee ratings of the company are unacceptable.
  • Potentially valuable employees are not applying or accepting offers.
  • The overall market size is shrinking.
  • Not being able to meet payroll in the short-term or meet covenant requirements in financing.

Your scenario planning highlights future uncertainties, risks, and potential crisis.

  • Your scenario planning process also require challenges from external advisors, consultants, and experts.
  • Challenges are required to: your process, your scenarios, and the decisions you make after considering your scenarios.

Often the board of directors and C-Suite do not know that their company is in crisis or heading toward crisis.

  • No ongoing monitoring and analysis of: the number of customers or market share, the Net Promoter Score, customer churn and retention; lifetime customer value and customer acquisition costs.
  • No benchmarking relative to the competition.
  • No free cash flow forecasting and related scenario analysis
  • No monitoring and analysis of employee turnover.
  • No monitoring or analysis of employee ratings.
  • No forecasting of long-term ability to meet payroll or meet covenant requirements in financing.
  • No monitoring and analysis of the market size i.e. the number of customers with urgent problems and needs who are willing and able to pay for the company’s solution.
  • No scenario planning.
  • No challenges from external advisors, consultants, and experts.

What is the root cause of the need for transformation?

The leadership talent (i.e. the board of directors and C-Suite) is the root cause of the need for transformation.

The leadership talent may not know what skills, experience, and knowledge they personally need in order to:

  • Continuously evolve the company to keep pace with customers, users, and the overall ecosystem.
  • Identify if the company is heading towards crisis, as noted above in the section regarding not knowing if in crisis
  • Avoid decisions which can result in crisis.

The fundamental question is: Do you need to transform your leadership talent?

The leadership of a successful business may decide upon transformation for two reasons.

  • The leadership talent may have decided to launch new businesses e.g. Google.
  • The leadership talent may have decided to be ahead of the ongoing evolution of the ecosystem. e. Transform before there is the need to transform.

Your next steps

  • Ensure you know whether or not your company is in crisis or heading towards crisis.
  • Collect the facts and conduct the analysis noted above in the section “What are the symptoms of a need for transformation?”

Footnotes

1 PWC, “PWC’s 26th annual global CEO survey”,

https://www.pwc.com/gx/en/issues/c-suite-insights/ceo-survey-2023.html

2 PWC Strategy + Business, “Translating trust into business reality”

https://www.pwc.com/gx/en/issues/trust/translating-trust-into-business-reality.html

 

What further reading should you do?

  • What is business transformation?

https://koorandassociates.org/business-transformation/what-is-business-transformation/

  • Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

  • Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

  • How do you succeed with transformation?

https://koorandassociates.org/business-transformation/how-do-you-succeed-with-transformation/

Tom Koor

How can M&A create value? V3

How can M&A create value? V3

What is the purpose of this article?

  • Enable the board of directors, C-Suite, and investors discuss how to achieve value from M&A.

You can download a PDF of this article from: How can M&A create value V3

What are the critical learnings in this article?

  • More than half of all deals destroy value for investors.
  • Focus on creating long-term value for the merged company’s ecosystem members, especially customers.
  • Create the VCO (Value Creation Officer) role. The VCO’s focus is on value creation.

What are the five types of companies doing M&A?

  • Traditional operating companies that will integrate talent, processes, technology, etc.
  • Private Equity firms, which control their companies, acquiring portfolio companies or add-ons to portfolio companies.
  • Venture Capital firms, which will be actively involved in the portfolio companies.
  • Financial investors, who will be passive and not actively involved.
  • SPACs (Special Purpose Acquisition Vehicle) and Search Funds.

Some of the comments below apply to every type of M&A, some apply only to some of the types.

More than half of all deals destroy value for investors.1

The root causes of M&A failure at the deal stage are:

  • The M&A target does not fit the business strategy and future business model.
  • Synergy estimates (both revenue and costs) are optimistic. Relevant external benchmarks are not used. No bottom-up analysis.
  • Weak due diligence.
  • Those accountable for delivering the benefits are not involved at the deal stage.

The root causes of M&A failure at the integration stage are:

  • Taking too long to put in place the leadership accountable for delivering results.
  • Poor change management.
  • Poor planning and execution.
  • Limited ongoing communications with stakeholders.
  • Losing customers.

The value of the integrated company must be greater than the value of the standalone companies.

I have had the luck to be at a board of directors meeting at which the newly appointed CFO presented the results of the company’s past acquisition to: the board and the newly appointed CEO. The combined sales and profits after the merged company were significantly lower than the pre-acquisition sales and profits.  I assume this is what led to appointing a new CFO and a new CEO.

Why are you doing M&A?

  • Support the purpose of your company.
  • Provide increased value to the members of your company’s current ecosystem and the future merged ecosystem. These members include: customers, employees, investors, suppliers, partners, the broader public etc. Some members may be negatively impacted (e.g. employees let go due to cost cutting).  You’ll also have the challenge of allocating value creation among the members.

How will you create long-term value?

#1 Increase the capabilities of your company’s talent pool to drive long-term value growth.  Talent includes everyone in your company, starting with the board of directors.  It’s possible you may have to exit inappropriate talent.

#2 Enable more customers to achieve more value from your company.

  • More customers with more problems and needs they are willing and able to pay to address.
  • More customers perceive your competitively differentiated value proposition.

You may have to exit some unprofitable customers.

#3 Enable key members of your company’s ecosystem to achieve value.

#4 Increase the ability of your new pool of assets to provide value.

  • Your assets include: Processes, technology, intellectual property, partner, suppliers, channels (marketing, sales, distribution).
  • Your new pool of assets may require a number of changes and exits. Duplication should be reduced. Assets which are obsolete or provide little or no value must be eliminated.

The M&A process may also require divestures of: assets, business functions, business units, subsidiaries, etc.

What will be your synergy targets?

Only 58% of acquiring companies publicly announce synergy targets.  Of those that do announce synergy targets, only 29% update investors regarding progress against targets. Successful acquirers have higher internal targets than what is externally communicated.1

What are your next steps?

Your next steps depends upon what type of company you are what type of M&A you are contemplating.  In call cases, you need the VCO (Value Creation Officer) role, which is focused on the achievement of long-term value from M&A.  The VCO recommend the structure, processes, talent, and decision making principle required. The VCO has no decision making authority. If your company decides to ignore the advice of the VCO, you increase the chances of failure.

Some of the things the VCO will consider include

  • As soon as you start thinking about M&A, create the VCO (Value Creation Officer) role. The VCO is focused on creating long-term value from M&A.
  • The VCO will: outline the overall stages and journey of M&A, ranging from first considering M&A through to the eventual achievement of value; outline how Value Creation should be built into the M&A process; not be a decision maker but will suggest the decision making process and criteria (utilize existing governance structures as much as possible); be a temporary role, and without any direct full-time reports.
  • Help define the decision making principles, process, and participants for each stage of the overall M&A process. Decisions will have to be made regarding the allocation of value creation, and value destruction, to the members of your company’s ecosystem.
  • Outline the purpose of your company and of the post-merger company.
  • Document the purpose of M&A.
  • Describe the ecosystem members of the merged company and the impact on them of the merger. Model how much more value will be created by the merged company compared to the standalone companies.
  • Describe your approach for creating long-term value.
  • Describe why you’ll be able to create more value than competing bidders.
  • Help determine the maximum amount you are willing to pay. This will depend upon the terms and conditions.
  • Outline the various teams e.g. deal team, integration team, talent team, due diligence team. There may be multiple teams e.g. the talent team addressing changes to the board of directors may be different from the team addressing the C-Suite which may be different from the team addressing customer contact centre. Each team is accountable for the creation of their plan and achievement of the benefits arising from plan execution.

The scope of the plans may include changes to: board of directors, C-Suite, talent throughout the company, the organization structure,  processes, technology, channels, partners, etc.

The talent team(s) considerations include the following:

  • Outlining the CEO, President, Chief Operating Officer, C-Suite and C-suite direct reports roles and organization structure for the merged company.
  • Assigning accountability for the roles, within the merged company, which will be accountable for achieving value. Set the targets for each role. If the people occupying the roles will not commit, then replace those people. If the people who will occupy the roles will come from the merged company, then determine their commitment to targets as soon as possible.
  • The people accountable for value achievement are also accountable for the plans to achieve that value.
  • Those who will be accountable for creating and achieving value must have a degree of involvement with the due diligence.
  • Before exiting talent, consider their improvement or reallocation potential, if they had advisors, coaches, or trainers.
  • The two critical ways of looking at talent are; the value of the role and the value (current and potential) of the person in the role.

Who is the VCO?

The VCO may be a part-time or full time role for someone already part of your company OR may be a temporary outsider. Who might the VCO report to?

  • The controlling shareholder (if a private company);
  • The board chair; or
  • The CEO.

 

Footnotes

1 “The real deal on M&A, synergies, and value”, Boston Consulting Group, BCG Perspectives, 2016

https://www.bcg.com/en-ca/publications/2016/merger-acquisitions-corporate-finance-real-deal-m-a-synergies-value

Further reading

Do you understand your customers? V2

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

Do you understand your company’s external ecosystem?

https://koorandassociates.org/strategy-and-strategic-planning/do-you-understand-your-companys-external-ecosystem/

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

“The six types of successful acquisitions”, McKinsey, 2017 May

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-six-types-of-successful-acquisitions

“Change management in merger integration” Bain, 2017

https://www.bain.com/insights/change-management-in-merger-integration/

2023 Global M&A Report – Bain

https://www.bain.com/globalassets/noindex/2023/bain_report_global_m_and_a_report_2023.pdf

 

Tom Koor

LP (Limited Partner) assessment of a fund. V2

What is the purpose of this article?

  • Help individual LPs (Limited Partners) think about how to assess a fund making investments in private companies. Institutional investors, family offices, and ultra-high net worth individuals should do more than what is discussed here.
  • Help fund managers prepared to engage with knowledgeable LPs.
  • This article is for those people who view theses investments as part of their overall investment portfolio and thesis.

This article does not provide legal, tax, financial, or investment advice.

You may download a PDF of this article from: LP (Limited Partner) Assessment of a fund V2

What are the critical learnings in this article?

  • Assess a fund (which is asking you for money) the same way they’d assess a company asking them for money.
  • Understand how the fund and its managers are competitively superior i.e. managers know things that others don’t and can do things others cannot.
  • Understand the potential for the fund managers to succeed in rapidly changing and different future.

Is your fund going to be part of an asset class in your overall investments?

Your overall investments have the core goal of growing and preserving your capital.  This capital may be needed for:

  • Retirement;
  • Heirs and estate (may include a foundation); or
  • Major future spending; etc.

I’ve observed that some early stage investors, including some angel investors, do not include these expenditures as part of their overall investments.  They view these expenditure as:

  • Giving back; or
  • Supporting worthy causes and worthy individuals.

This article is focused on those people who consider their fund investment as part of an asset class in their overall investments.

What is the fundamental approach for assessing a fund?

The critical questions you must answer regarding the fund managers include:

  • How are the fund managers competitively differentiated in their capabilities to grow your investment, while managing risk? Managing risk is very different from avoiding risk.
  • What do they know about selecting companies that their competitors don’t know?
  • What do they know about helping portfolio companies succeed that their competitors don’t know?
  • How in their career have they succeeded?

Are the fund managers above average? In the top quartile?  Or higher?

Assess a potential fund (which is asking you for money) the same way the fund assess a company asking them for money.

Why focus on understanding how the fund managers are competitively differentiated?

Unlike 10+ years ago, these days there are countless funds and unlimited capital available.  Some of the implications include:

  • Many funds have been created by managers with limited capabilities to be successful.
  • The massive increase in the total number of funds means that there has been a massive increase in the number of below average funds.
  • Superb portfolio companies seek out funds that can provide more than just capital.

Do the fund managers have the potential to succeed in a rapidly changing and different  future? 1

The future will quickly be very different from the past.  Leading companies (of all kinds) are finding new and better ways to be successful. To what degree do the fund managers have the 6 core components of talent to succeed in a very different and uncertain future?

  • Self-awareness: e.g. Do the fund managers understand their strengths and weaknesses?
  • Character: e.g. Values, morals, and ethics. Warren Buffett supposedly said “…looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”
  • Relationship skills: e.g. Ability to create and sustain a network of personal relationships.
  • Crystallized intelligence: e.g. what skill, knowledge, ways of thinking, mental paradigms, and facts must the managers have.
  • Fluid intelligence: e.g. The ability to solve problems without past experience. This is critical for innovation, which is coming up with new and better solutions.
  • Cognitive skills: e.g. Able to collect and do fact based analysis with sound logic and reasoning.

Your assessment of the above 6 talent components requires defining positive and negative indicators for :

  • observations regarding the analysis of the data room;
  • answers to questions for the fund managers references;
  • answers to questions for others who have interacted with the fund managers;
  • answers given by questions to the fund managers; and
  • outcomes of the behavioural interviews of the fund managers.

What are the four decision stages for assessing a fund?

You need a filtering process to end up with a few high potential fund candidates.  Why a filtering process? You might have contact with dozens or hundreds of funds.  You don’t have time to do in-depth analysis of each fund.

  • Should you open an email from a fund or reach out to a fund?
  • Should you have a brief chat with a fund?
  • Should you conduct due diligence with the fund?
  • Should you make an investment?

There are three sets of assessment criteria and analysis, distributed throughout the four decision making stages.

  • Alignment with and support of your investment thesis.
  • Past accomplishments and plans to grow your investment.
  • The capabilities of the fund managers to succeed in an uncertain future.

Some assessment criteria result in an immediate rejection of the fund (e.g. you don’t trust the fund managers) while other criteria result in a scoring.

Your assessments reflect:

  • The competitive differentiation of the fund and its managers.
  • Both the potential to increase the value of your assessment and to manage risk.

 What is the purpose of the data room?

  • The data room provides a collection of documents which are intended to help answer some of your due diligence questions.
  • You’ll need to analyze the data room contents and benchmark the fund relative to other funds. The benchmark may range from an informal judgement to a factual analysis.

What are the fund’s 8 sets of data room contents, if this is the managers’ first fund?2

  • Fundraising pitch deck, including: team, including managers, advisors, etc. (with biographies), the opportunity (i.e. what is the market gap and why is the team best positioned to win), investment thesis, sourcing strategy decision making process, case studies, track record spreadsheet, portfolio construction, fund structure and terms.
  • Investment track record detail. If this is the managers’ first fund, the investment track record will include results from previous funds the managers were at and the managers personal investment results.
  • Investment memos and market map. The market map illustrates the segments and potential portfolio companies.3
  • Due diligence questionnaire. An industry standard questionnaire is provided by the ILPA (Institutional Limited Partners Association)
  • LPA (Limited Partnership Agreement).
  • Fund Model. A financial spreadsheet illustrating hypothetical future portfolio, with a number of key metrics
  • Reference list. You may also contact people not on the reference list. You may also require a formal background check of the fund managers.  Who are the other investors, their experience and value, and why did they invest?
  • Fund contact list. This includes lawyers, accountants, other professionals, etc.

What are the fund’s 6 additional sets of data room contents, if this is NOT the managers’ first fund?2

  • Financial information i.e. free cash flow actuals and forecast scenarios; audited financial statements.
  • Examples of prior capital call and distribution notices.
  • Compliance manual.
  • ESG (environmental, social and governance) and DEI (diversity, equity and inclusion) policies.
  • Valuation policies.
  • Business continuity planning.

How are LPs engaged with the General Partner?

  • What information is provided to the LPs and when?
  • How often is there a meeting of all LPs and what is the purpose of those meetings?
  • What authority do LPs have? What decisions must they approve? What veto power do they have?

What is the role of the LPAB (LP Advisory Board)?

  • What is the purpose of the LPAB?
  • What is the documented mandate?
  • What authority does the LPAB have? What decisions does it make? What veto power does it have?
  • How often does it meet?
  • What information is provided to the LPAB and when?
  • Who is on the board and how are they members selected?

What are your next steps?

  • Review your overall investment thesis and thesis for the asset class your fund will reside in.
  • Create your template for your personal investment memo. This will capture your facts, analysis, and judgement as to why you want to make the investment in the fund. This will be helpful in the future, both as you look back and as you consider additional fund investments.
  • Prepare your plan. This will include specific decision making process and criteria, including those red flag items which result in immediate rejection of a fund candidate.
  • Assemble your team e.g. lawyer with experience in LP agreements (and governance and dispute resolution), tax advisor, other professionals to assist with the data collection and analysis. Your team might include psychologists.
  • Prepare your due diligence questionnaire and identify at what stage(s) the information will be collected and analyzed.

Footnotes

1 Core components of talent, Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

2 “Data Room Best Practices”, Silicon Valley Bank

https://www.svb.com/emerging-manager-insights/starting-a-fund/data-room-best-practices

3 Illustration of a market map, Atlantic Canada Fintech, 2022

https://atlanticfintech.ca/wp-content/uploads/2022/11/fathom4sight_atlantic-fintech_ENG-report_2022.png.pdf

What further reading should you do?

“Data Room Best Practices”, Silicon Valley Bank

https://www.svb.com/emerging-manager-insights/starting-a-fund/data-room-best-practices

“Due Diligence Questionnaire”, Business Finland Venture Capital

https://www.businessfinland.vc/4af44d/siteassets/venture-capital/sijoitusdokumentit/bfvc-due-diligence-questionnare.docx

Why are values, morals, and ethics important

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

How to assess director and CEO talent – regarding values, morals, and ethics.

https://koorandassociates.org/values-morals-and-ethics/how-to-assess-director-and-ceo-candidates-regarding-values-morals-and-ethics/

How do asset managers assess private equity fund managers?

https://koorandassociates.org/creating-business-value/survey-how-do-asset-managers-assess-private-equity-fund-managers/

Tom Koor

Do you understand your company’s external ecosystem?

What is the purpose of this article?

Help founders, the C-Suite, board of directors, investors, and others understand your company’s external ecosystem.

You can download a PDF of this article from: Do you understand your company’s external ecosystem

What are the critical learnings in this article?

  • Not understanding your company’s external ecosystem can doom your company.
  • An ecosystem is broader and more complex than your company’s stakeholders.

What is an ecosystem?

A business ecosystem is the network of organizations—including suppliers, distributors, customers, competitors, government agencies, board of directors, C-Suite, employees, and so on—involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.1

A stakeholder is a party that has an interest in a company and can either directly affect or be affected by the business. 2

An ecosystem is broader than your company’s stakeholders, interact with each other, and may indirectly affect or be affected by your company.  Ecosystem members may be competing, may emerge in the future, or disappear in the future. The members may not even be aware of your company.

Who are some of the potential members of your company’s external ecosystem?

Cash paying customers, users, suppliers, distributers, established companies, competitors, legislators, regulators, NGO (non-governmental organizations), not-for-profits, technology researchers and academic institutions, communities ranging from local to global, industry consortia, governments at national and local level (including legislators and regulators), entrepreneurs or startups, etc.

Why do you need to understand your external ecosystem?

Imagine if you don’t understand:

  • Why your customers buy from you rather than other companies? How your customers perceive your competitive value proposition?
  • How potential employees perceive the value of joining your company?
  • How current and potential investors perceive your company, relative to other investment opportunities?
  • And so on.

Lack of understanding can doom your company.

What are the three types of interaction with your company?

  • One-on-one people interaction e.g. individual email, phone or video call, in person face-to-face.
  • One-on-one software interactions e.g. chat bot, using the software components of your solution, browsing your website.
  • Indirect interaction e.g. mass emails, reading about your company on social media.

Ecosystem members can impact your company, even if there is no interaction.

  • Some members may have no interaction with your company? E.g. NGOs (Non-Governmental Organization) which drive changes to laws and regulations impacting your industry and your company.
  • Another example is researchers developing and rolling out new technology. E.g. ChatGBT signed up over 1 million users in five days. Netflix took 3.5 years, Twitter took 2 years, Facebook took 10 months, Spotify took 5 months, and Instagram took 2.5 months.

What do you need to understand about your external ecosystem?

All these questions need to customized for your specific situation.

The following are questions regarding members who interact with your company

  • Who are the members of your external ecosystem?
  • How many members are there, of each type?
  • Which members interact one-on-one with people in your company?
  • Which members have one-on-one software interactions?
  • Which members have interactions?
  • What are the members problems, needs, and issues?
  • What are the members perceptions regarding your company, its leadership, employees, and the specific points of interaction?

To complete your picture of your external ecosystem, you also need to identify and understand:

  • Who are the members who can impact your company but don’t interact with your company?
  • How do all these external members interact with each other?

What is the current challenge most large companies face regarding their external ecosystem?

PWC’s 26th annual global CEO survey showed that few companies were collaborating with ecosystem members to generate business value or address social issues. 1

  • With established companies or competitors: 26% to create business value, 13% to impact social issues
  • With industry consortia: 20% to create business value, 16% to impact social issues
  • With entrepreneurs or start-ups: 20% to create business value, 10% to impact social issues.
  • With governments at the national or local level: 19% to create business value; 18% to impact social issues
  • With academic institutions: 16% to create business value, 12% to impact social issues
  • With non-governmental organizations: 10% to create business value, 14% to impact social issues.

What are your next steps?

Recognize that understanding your external ecosystem members will be an iterative, evolving, and ongoing process. This understanding is part of what drives your company’s short and long-term plans and execution. The first few steps include:

  • List your current external ecosystem members.
  • For each one, customize the questions above and answer them. If you don’t have fact based answers, then document your assumptions.
  • Identity the potential short-term impacts on your company.
  • Look 5-10 years into the future and create scenario of ecosystem members and answers or assumptions to the questions above.
  • Identify the potential long-term impacts on your company.

Footnotes

1 Adapted from Investopedia 2021 Jan 20

2 Adapted from Investopedia 2023 Jan 09

3 PWC’s 26th annual Global CEO Survey, Page 18

https://www.pwc.com/gx/en/issues/c-suite-insights/ceo-survey-2023.html

 What further reading should you do?

Do you understand your customers? V2

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

Tom Koor

LP (Limited Partner) investment in a fund.

What is the purpose of this article?

  • Help individual LPs (Limited Partners) think about how to assess a fund making investments in private companies. Institutional investors, family offices, and ultra-high net worth individuals should do more than what is discussed here.
  • Help fund managers prepared to engage with knowledgeable individual LPs.
  • This article is for those people who view theses investments as part of their overall investment portfolio and thesis.

You may download a PDF of this article from: LP (Limited Partner) Assessment of a fund

What are the critical learnings in this article?

  • Assess a fund (which is asking you for money) the same way they’d assess a company asking them for money.
  • Understand how the fund and its managers are competitively superior i.e. managers know things that others don’t and can do things others cannot.
  • Understand the potential for the fund managers to succeed in rapidly changing and different future.

Is your fund going to be part of an asset class in your overall investments?

Your overall investments have the core goal of growing and preserving your capital.  This capital may be needed for:

  • Retirement;
  • Heirs and estate (may include a foundation); or
  • Major future spending; etc.

I’ve observed that some early stage investors, including some angel investors, do not include these expenditures as part of their overall investments.  They view these expenditure as:

  • Giving back; or
  • Supporting worthy causes and worthy individuals.

This article is focused on those people who consider their fund investment as part of an asset class in their overall investments.

What is the fundamental approach for assessing a fund?

The critical questions you must answer regarding the fund managers include:

  • How are the fund managers competitively differentiated in their capabilities to grow your investment, while managing risk? Managing risk is very different from avoiding risk.
  • What do they know about selecting companies that their competitors don’t know?
  • What do they know about helping portfolio companies succeed that their competitors don’t know?
  • How in their career have they succeeded?

Are the fund managers above average? In the top quartile?  Or higher?

Assess a potential fund (which is asking you for money) the same way the fund assess a company asking them for money.

Why focus on understanding how the fund managers are competitively differentiated?

Unlike 10+ years ago, these days there are countless funds and unlimited capital available.  Some of the implications include:

  • Many funds have been created by managers with limited capabilities to be successful.
  • The massive increase in the total number of funds means that there has been a massive increase in the number of below average funds.
  • Superb portfolio companies seek out funds that can provide more than just capital.

Do the fund managers have the potential to succeed in a rapidly changing and different  future? 1

The future will quickly be very different from the past.  Leading companies (of all kinds) are finding new and better ways to be successful. To what degree do the fund managers have the 6 core components of talent to succeed in a very different and uncertain future?

  • Self-awareness: e.g. Do the fund managers understand their strengths and weaknesses?
  • Character: e.g. Values, morals, and ethics. Warren Buffett supposedly said “…looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”
  • Relationship skills: e.g. Ability to create and sustain a network of personal relationships.
  • Crystallized intelligence: e.g. what skill, knowledge, ways of thinking, mental paradigms, and facts must the managers have.
  • Fluid intelligence: e.g. The ability to solve problems without past experience. This is critical for innovation, which is coming up with new and better solutions.
  • Cognitive skills: e.g. Able to collect and do fact based analysis with sound logic and reasoning.

Your assessment of the above 6 talent components requires defining positive and negative indicators for :

  • observations regarding the analysis of the data room;
  • answers to questions for the fund managers references;
  • answers to questions for others who have interacted with the fund managers;
  • answers given by questions to the fund managers; and
  • outcomes of the behavioural interviews of the fund managers.

What are the four decision stages for assessing a fund?

You need a filtering process to end up with a few high potential fund candidates.  Why a filtering process? You might have contact with dozens or hundreds of funds.  You don’t have time to do in-depth analysis of each fund.

  • Should you open an email from a fund or reach out to a fund?
  • Should you have a brief chat with a fund?
  • Should you conduct due diligence with the fund?
  • Should you make an investment?

There are three sets of assessment criteria and analysis, distributed throughout the four decision making stages.

  • Alignment with and support of your investment thesis.
  • Past accomplishments and plans to grow your investment.
  • The capabilities of the fund managers to succeed in an uncertain future.

Some assessment criteria result in an immediate rejection of the fund (e.g. you don’t trust the fund managers) while other criteria result in a scoring.

Your assessments reflect:

  • The competitive differentiation of the fund and its managers.
  • Both the potential to increase the value of your assessment and to manage risk.

 What is the purpose of the data room?

  • The data room provides a collection of documents which are intended to help answer some of your due diligence questions.
  • You’ll need to analyze the data room contents and benchmark the fund relative to other funds. The benchmark may range from an informal judgement to a factual analysis.

What are the fund’s 8 sets of data room contents, if this is the managers’ first fund?2

  • Fundraising pitch deck, including: team, including managers, advisors, etc. (with biographies), the opportunity (i.e. what is the market gap and why is the team best positioned to win), investment thesis, sourcing strategy decision making process, case studies, track record spreadsheet, portfolio construction, fund structure and terms.
  • Investment track record detail. If this is the managers’ first fund, the investment track record will include results from previous funds the managers were at and the managers personal investment results.
  • Investment memos and market map. The market map illustrates the segments and potential portfolio companies.3
  • Due diligence questionnaire. An industry standard questionnaire is provided by the ILPA (Institutional Limited Partners Association)
  • LPA (Limited Partnership Agreement).
  • Fund Model. A financial spreadsheet illustrating hypothetical future portfolio, with a number of key metrics
  • Reference list. You may also contact people not on the reference list. You may also require a formal background check of the fund managers.  Who are the other investors, their experience and value, and why did they invest?
  • Fund contact list. This includes lawyers, accountants, other professionals, etc.

What are the fund’s 6 additional sets of data room contents, if this is NOT the managers’ first fund?2

  • Audited financial statements.
  • Examples of prior capital call and distribution notices.
  • Compliance manual.
  • ESG (environmental, social and governance) and DEI (diversity, equity and inclusion) policies.
  • Valuation policies.
  • Business continuity planning.

What are your next steps?

  • Review your overall investment thesis and thesis for the asset class your fund will reside in.
  • Create your template for your personal investment memo. This will capture your facts, analysis, and judgement as to why you want to make the investment in the fund. This will be helpful in the future, both as you look back and as you consider additional fund investments.
  • Prepare your plan. This will include specific decision making process and criteria, including those red flag items which result in immediate rejection of a fund candidate.
  • Assemble your team e.g. lawyer with experience in LP agreements (and dispute resolution), tax advisor, other professionals to assist with the data collection and analysis. Your team might include psychologists.
  • Prepare your due diligence questionnaire and identify at what stage(s) the information will be collected and analyzed.

Footnotes

1 Core components of talent, Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

2 “Data Room Best Practices”, Silicon Valley Bank

https://www.svb.com/emerging-manager-insights/starting-a-fund/data-room-best-practices

3 Illustration of a market map, Atlantic Canada Fintech, 2022

https://atlanticfintech.ca/wp-content/uploads/2022/11/fathom4sight_atlantic-fintech_ENG-report_2022.png.pdf

What further reading should you do?

“Data Room Best Practices”, Silicon Valley Bank

https://www.svb.com/emerging-manager-insights/starting-a-fund/data-room-best-practices

“Due Diligence Questionnaire”, Business Finland Venture Capital

https://www.businessfinland.vc/4af44d/siteassets/venture-capital/sijoitusdokumentit/bfvc-due-diligence-questionnare.docx

Why are values, morals, and ethics important

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

How to assess director and CEO talent – regarding values, morals, and ethics.

https://koorandassociates.org/values-morals-and-ethics/how-to-assess-director-and-ceo-candidates-regarding-values-morals-and-ethics/

How do asset managers assess private equity fund managers?

https://koorandassociates.org/creating-business-value/survey-how-do-asset-managers-assess-private-equity-fund-managers/

Tom Koor

Traditional succession planning is obsolete.

What is the purpose of this article?

Enable investors, the board of directors, and C-Suite to discuss how to improve succession planning.  The focus of this article is on the board of directors and C-Suite.

You many download a PDF of this article from: Traditional succession planning is obsolete V2

What are the critical learnings in this article?

  • Board directors and C-Suite executives must be able to make major decisions on the day they are appointed. Need to learn about the company for 6-12 months risks failure.
  • Board directors and C-Suite executives need to have the capabilities to succeed in a future which is very different from the past. These leaders are of limited value if they only have the skills and experience to solve yesterday’s problems with the day before’s solutions.

What does traditional succession planning look like?

  • A person is interviewed for a board director or C-suite position.
  • There is an assessment and due diligence process.
  • The C-suite candidate accepts a job offer and on the first day of their job has accountability and delegated authority to make decisions.
  • The board director is put forward for election. On the date that they are elected they have accountability and decision making authority

BUT

  • “Two-thirds of US publicand private companies still admit that they have no formal CEO succession plan in place”1
  • I assume that the board of directors succession planning is in a similar state.

How effective has traditional succession planning been?

Close to half of successors fail.  Most board directors have limited knowledge of their company and approve plans to fail.

  • 40-to-50 percent of new leaders fail within the first 18 months.2
  • One in three CEO successions fail.1
  • Most companies successfully execute their plans to fail.3
  • Most company directors do not understand: the strategy, how the company creates value, and industry dynamics.3

What was the traditional succession planning process?

  • Select a successor. The process, and process quality, varied enormously.
  • Elect them to the board of directors or appoint them to the C-Suite.
  • Give them lots of time to get up to speed.
  • Once they are up to speed, see what happens – do they succeed or fail?
  • May, or may not, exit failing leaders.

 How long did it take for leaders to get up to speed and make an impact?2

  • Most new leaders—92 percent of external hires and 72 percent of internal hires—take far more than 90 days to get up to full speed. Many executives admit it took them at least six months to achieve real impact (62 percent for external, 25 percent for internal hires).
  • CEOs face an even longer runway: On average, stakeholders give them nine months to develop fully a strategic vision and win support from employees, 14 months to build the right team and 19 months to increase share price employing that direction.
  • I assume that board directors also require significant time to get up to speed.

Why did this approach work in the distant past?

  • Customer requirements and needs changed slowly. Changes happen rapidly today.
  • Competitors did not emerge or grew slowly. Now, competitors suddenly appear and rapidly grow to global scale.
  • Technology changed slowly. These days, new technologies suddenly appear and old technologies rapidly change.
  • Crisis were few and far between. Today, and in the future, there will be never ending crisis.
  • In the past, the near-term future looked similar to the past. Now, the near-term future may be radically different from the near-term past.

 Why does the traditional succession plan execution often lead to failure?

  • The selection process is flawed or doesn’t exist.
  • The preparation process is flawed or doesn’t exist.
  • Exiting of failing leaders takes too long or doesn’t happen. A weak or non-existent succession process results in failing leaders remaining.

What are the fatal flaws in succession planning?

  • In today’s fast changing world, crisis and major changes in the company’s ecosystem do not wait until the director or C-Suite executive gets up to speed.
  • Many ecosystem members no longer tolerate a new director or C-Suite executive requiring a long-time before they provide value.
  • By the time the person is up to speed, massive damage may have occurred to the company.
  • Failing leaders are not exited, due to lack of prepared successors.

What are the three fundamental changes that must be made to succession planning?

  • Board directors and C-Suite executives need to be up-to-speed on the day they assume accountability and decision making authority.
  • The potential successors need to learn, develop themselves, and be assessed prior to day one.
  • Successors need to have the capabilities to succeed in a future which is very different from today and from the past. Assessment and development processes must change.

What does a successor look like on the day before they assume decision making authority.

The leader:

  • Understands who the key members of the company’s ecosystem are, their expectations, and has (or creates) relationships with them. Key members include: employees, your team members, customers, suppliers, partners.
  • Is self-aware of their strengths and weakness. Self-awareness is very different from personal opinion.
  • Announces changes to their team on day one.
  • Understands the company’s culture and know what actions to take to change it.
  • Understands the company’s past performance, priorities, and actions. Know what actions to start taking on day one and what priorities to change.

What are your next steps?

  • Be clear on how the future may be different from today and the past
    1. What will be the purpose of the company?
    2. Who will be the ecosystem members?
    3. What will be the long-term trends, both likely and unlikely?
    4. What will be the near-term challenges?
    5. What will be the future scenarios?
  • What’s the value the director, or C-Suite member must enable?
  • What are the implications of the above regarding the skills the successor will need to have?
  • What are the capabilities the successor will need to succeed in a potentially unknown future? 4
    1. What self-awareness?
    2. What character is needed? Values, morals, and ethics? Perseverance?
    3. What relationships and relationship building skills are necessary? E.g. building relationships with colleagues, customers, partners, regulators, NGOs (Non Governmental Organizations) etc.
    4. What crystallized intelligence (i.e. historical skills, knowledge, and data)?
    5. What fluid intelligence (ability to solve problems without past experience)?
    6. What cognitive skills?
  • Identify potential successors, inside and outside your company.
  • Assess talent without direct contact.
  • Assess talent with direct contact e.g.
    1. Reference checks
    2. Formal background checks
    3. Behavioural interviews
    4. Psychological and cognitive ability testing
    5. Simulations, both a day-in-the-life and crisis simulation
  • Prepare:
    1. Development plans for successors and a monitoring process.
    2. The onboarding plan leading up to the day the person assumes decision making authority.
    3. The ongoing assessment and development plans, which evolve over time. The regular assessment considers whether or not the person must be replaced with one of their successors.

 Footnotes

1 CEO Succession starts with your leaders, McKinsey

https://www.mckinsey.com/featured-insights/leadership/ceo-succession-starts-with-developing-your-leaders

2 It really isn’t about 100 days, McKinsey

https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/the-organization-blog/it-really-isnt-about-100-days

3 Is your company planning to fail?  Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

4 Core components of talent

https://koorandassociates.org/creating-business-value/core-components-of-talent/

What further reading should you do?

Why are value, morals, and ethics important?

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

Tom Koor

What are the core components of talent?

What is the purpose of this article?

Enable founders, the C-Suite, board of directors, investors, and others to discuss the company’s talent requirements.

You may download a PDF of this article from: Core components of talent

 What are the critical learnings in this article?

There are 6 core components of talent.

  • The most important is self-awareness. Internal self-awareness: How clearly we see and understand ourselves. External self-awareness: understanding how other people view us.
  • How can you succeed if you don’t know how others perceive you, and which perceptions you need to change? E.g. Decision makers who would hire you or promote you? Customers who would buy from you? Someone deciding whether or not to become your spouse?
  • How can you succeed if you don’t understand you capabilities, the implications of your capabilities, and which ones to change? E.g. I’ve met people who have limited skills in certain areas but at the same time hope that companies that are looking for world class skills will hire them. The result is they don’t get hired, sometimes accompanied by massive disappointment.

What are the 6 core components of talent?

#1 Self Awareness

What are the two types of self-Awareness?1.

  • Internal self-awareness: How clearly we see and understand ourselves.
  • External self-awareness: understanding how other people view us.

What is the value of self awareness?

  • How can you succeed if you don’t know how others perceive you, and which perceptions you need to change? E.g. Decision makers who would hire you or promote you? Customers who would buy from you? Someone deciding whether or not to become your spouse?
  • How can you succeed if you don’t understand you capabilities, the implications of your capabilities, and which ones to change? E.g. I’ve met people who have limited skills in certain areas but at the same time hope that companies that are looking for world class skills will hire them. The result is they don’t get hired, sometimes accompanied by massive disappointment.
  • Internal self-awareness is associated with happiness, and higher job and relationship satisfaction.1
  • Employees perceive leaders with higher external self-awareness as: having better relationships with them and being more effective leaders.1

How many people have self-awareness?

  • Most people believe they are self-aware.1
  • Only 10-15% of people have self awareness.1
  • 87% of Stanford University MBA students rate their academic performance above the median. 94% of U.S. college professors rate themselves superior to their colleagues. 2
  • 96% of leaders believe their people skills are above average. 3

What are the challenges in gaining self-awareness?1

  • People don’t always learn from experience. Experience leads to over-confidence in self-knowledge
  • The more power a person has, the more likely they are to over-estimate their skills and abilities.
  • People who spend time in introspection are less self-aware, have worse job satisfaction, and well-being

#2 Character

  • VME (Values, Morals, and Ethics) Warren Buffett supposedly said “..looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”
  • Perseverance, especially against all odds.
  • Knowing when to stop persevering. One leader told me “If you’re digging yourself into a hole, stop digging.”

#3 Relationship skills

  • Create and maintain a network of relationships throughout your ecosystem.
  • Persuasion
  • Negotiation
  • Creating and maintaining followers. A leader without committed followers is not a leader.

#4 Crystallized intelligence4

  • Crystallized intelligence is comprised of historical: skills, knowledge(including ways to think, mental paradigms, methodologies), and data.
  • The need for crystallized knowledge varies enormously depending on the situation.
  • Many years of experience may be very valuable for a doctor doing knee replacements.
  • Understanding what customer needs were 5 years ago, and how those were met, may be of little value when: customers have changed; needs have changed; and competition has changed.

#5 Fluid intelligence5

Solve problems without past experience.

#6 Cognitive skills4

  • Long-term memory
  • Working memory: hang onto information while using it
  • Logic and reasoning
  • Visual processing
  • Processing speed
  • Attention
    1. Sustained – for long periods of time
    2. Selective – without distraction
    3. Divided – doing two things at once

When do you assess the core components of talent?

  • Hiring someone
  • Ongoing basis
  • Creating a development plan
  • Identifying a potential successor
  • Promotion
  • Termination

How can you assess talent?

The methods depend on where the talent is. E.g.

  • A potential hire you have not contacted nor have they contacted you.
  • A potential hire you are in contact with.
  • A current member of your company.

The methods may include:

  • Behavioural interviews
  • Simulations
  • 3600 assessments
  • Background checks
  • Various tests which assess each of the 6 core components.

What are your next steps?

  • Identify the role.
  • Define the long-term value of the role in your company’s future scenarios.
  • Will the role be preparing some-one to be a successor? Not every role and every person must be a successor e.g. not every board director needs to have the potential to be a board chair not must they be developed in order to become board chair.
  • What are the talent requirements for the role, based upon the above core components?
  • Prepare an evaluation process and plan for the person. The evaluation process will consider more than the above core components e.g. background check, social media monitoring, etc.

Footnotes

1 What self-awareness really is (and how to cultivate it) – Harvard Business Review 2019 January 04

https://hbr.org/2018/01/what-self-awareness-really-is-and-how-to-cultivate-it

We’re all above average

2 https://www.northcoastjournal.com/humboldt/were-all-above-average/Content?oid=4206392&media=AMP+HTML

Aspiring to leadership: Technical knowledge vs people skills

3 https://smartleaders.ca/aspiring-to-leadership-technical-knowledge-vs-people-skills/

4 Fluid vs crystallized intelligence

https://www.simplypsychology.org/fluid-crystallized-intelligence.html

5 What are cognitive skills?

https://www.mindmattersjo.com/what-are-cognitive-skills.html

 

What further reading should you do?

Elite talent – what is the purpose?

https://koorandassociates.org/creating-business-value/elite-talent-what-is-the-purpose/

“Understanding the leaders ‘identity mindtrap’: Personal growth for the C-Suite” McKinsey Article

https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/understanding-the-leaders-identity-mindtrap-personal-growth-for-the-c-suite

“What self awareness is and how to cultivate it” Harvard Business Review

https://hbr.org/2018/01/what-self-awareness-really-is-and-how-to-cultivate-it

Why are value, morals, and ethics important?

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Tom Koor

Values – U.S. Army V2

What is the purpose of this article?

  • Enable investors, the board of directors, C-Suite and others to discuss the values of your company.
  • Help identify the role of values in selecting, assessing, and exiting: board directors, C-Suite, and other members of your company.

You can download a PDF of this article from: Values – US Army V2

What are the critical learnings in this article?

  • Values are doing what is right – which is far more than following the law.
  • Acting and behaving on values may come with great personal pain.

 What is the purpose of the U.S. Army?

“To deploy, fight and win our nation’s wars by providing ready, prompt and sustained land dominance by Army forces across the full spectrum of conflict as part of the joint force.”1

“THE ARMY OF 2030

As the Army comes out of the conflicts in Iraq and Afghanistan and refocuses on the pacing challenge of China and the acute threat posed by Russia, Army leaders are directing the most significant reorganization and technical innovation since the end of the Cold War — ensuring our adversaries cannot outrange or outpace us on traditional battlefields, or the new frontiers of space and cyberspace.

The world is changing, and the Army is changing with it.”1

 I observe that the U.S. Army purpose is focused on the long-term future, not the past or near-term.

What are the values of the US Army?1

 LOYALTY

Bear true faith and allegiance to the U.S. Constitution, the Army, your unit and other Soldiers. Bearing true faith and allegiance is a matter of believing in and devoting yourself to something or someone. A loyal Soldier is one who supports the leadership and stands up for fellow Soldiers. By wearing the uniform of the U.S. Army, you are expressing your loyalty. And by doing your share, you show your loyalty to your unit.

DUTY

Fulfill your obligations. Doing your duty means more than carrying out your assigned tasks. Duty means being able to accomplish tasks as part of a team. The work of the U.S. Army is a complex combination of missions, tasks and responsibilities — all in constant motion. Our work entails building one assignment onto another. You fulfill your obligations as a part of your unit every time you resist the temptation to take “shortcuts” that might undermine the integrity of the final product.

RESPECT

Treat people as they should be treated. In the Soldier’s Code, we pledge to “treat others with dignity and respect while expecting others to do the same.” Respect is what allows us to appreciate the best in other people. Respect is trusting that all people have done their jobs and fulfilled their duty. And self-respect is a vital ingredient with the Army value of respect, which results from knowing you have put forth your best effort. The Army is one team and each of us has something to contribute.

SELFLESS SERVICE

Put the welfare of the nation, the Army and your subordinates before your own. Selfless service is larger than just one person. In serving your country, you are doing your duty loyally without thought of recognition or gain. The basic building block of selfless service is the commitment of each team member to go a little further, endure a little longer, and look a little closer to see how he or she can add to the effort.

 HONOR

Live up to Army values. The nation’s highest military award is The Medal of Honor. This award goes to Soldiers who make honor a matter of daily living — Soldiers who develop the habit of being honorable, and solidify that habit with every value choice they make. Honor is a matter of carrying out, acting, and living the values of respect, duty, loyalty, selfless service, integrity and personal courage in everything you do.

INTEGRITY

Do what’s right, legally and morally. Integrity is a quality you develop by adhering to moral principles. It requires that you do and say nothing that deceives others. As your integrity grows, so does the trust others place in you. The more choices you make based on integrity, the more this highly prized value will affect your relationships with family and friends, and, finally, the fundamental acceptance of yourself.

PERSONAL COURAGE

Face fear, danger or adversity (physical or moral). Personal courage has long been associated with our Army. With physical courage, it is a matter of enduring physical duress and at times risking personal safety. Facing moral fear or adversity may be a long, slow process of continuing forward on the right path, especially if taking those actions is not popular with others. You can build your personal courage by daily standing up for and acting upon the things that you know are honorable.

What are your next steps?

  • Compare your company’s purpose and values to the U.S. Army purpose and values.
  • Outline the purpose of your company.
  • Describe how your company’s values enable the achievement of your company’s purpose and your company’s long-term competitive success.
  • Describe how values are used to: select, assess, and exit – board directors, the C-Suite, and other employees, contractors, suppliers and partners.

Footnotes

1 U.S. Army website November 14, 2022

https://www.army.mil/about/#:~:text=Our%20purpose%20remains%20constant,part%20of%20the%20joint%20force.

 What further reading should you do?

Why are values, morals, and ethics important?

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

Society’s trust in corporate leadership and political leadership is low.

https://koorandassociates.org/values-morals-and-ethics/societys-trust-in-corporate-leadership-and-political-leadership-is-low/

Tom Koor

What does the Toronto startup ecosystem look like? V6

What is the purpose of this article?

  • Help participants of the Toronto Startup Ecosystem understand the broad scope and many components.
  • This document focuses on the high-tech and software startup ecosystem, and outlines the different types of members comprising the ecosystem.

You can download a PDF of this article from: What does the Toronto startup ecosystem look like (V6)

What are the critical learnings in this article?

The Toronto Startup Ecosystem is global, with hundreds or even thousands of interreacting members.

What is a business ecosystem?

“A business ecosystem is the network of organizations—including suppliers, distributors, customers, competitors, government agencies, board of directors, C-Suite, employees, society, and so on—involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.” 1

What is the value of taking an ecosystem perspective?

  • Members who have no direct involvement with your company may have a massive impact on your company. e.g. social license to operate.

How do you picture an  ecosystem?

  • Each ecosystem member is in a circle.
  • Each member has a line to every other member.
  • You’re right – this is a complex diagram.
  • It is reality today e.g. a local community around a proposed mine in a third world country has the potential to stop the development of the mine, thus impacting your company’s profits.

The Toronto ecosystem is global in scope

  • Startups based in Toronto may have global customers, investors, employees, etc. Toronto funds may invest globally.

The following is a list of the 26 components of the Toronto startup ecosystem,

The is not intended to be 100% complete. It’s my current understanding.

#1 Founders

May be in Toronto, or anywhere in the world.

 #2 Cash paying customers and users

May be in Toronto, or anywhere in the world.

 #3 Employees

May be in Toronto, or anywhere in the world

#4 Accelerators and incubators

There are a broad range of incubators and accelerators and almost every one is different. As a startup evolves, it may move among several different types of incubators and accelerators.  Incubators and accelerators focus on startups where they  can have maximum impact by utilizing admittance criteria and processes. Common characteristics of incubators and startups are:

  • Links to investors.
  • Access to lawyers.
  • Access to mentors and advisors
  • Networking with other startups.
  • Financing is sometimes provided.

Incubators

The goal of an incubator is to help take a start-up to the point where there is a MVP (Minimum Viable Product). The process takes 12 to 24 months.  The founders decide what incubator resources to draw upon and at what time.

The key characteristic of an incubator is co-located office space with other start-ups.

Accelerator

The goal of an accelerator is to quickly grow the size and value of the startup to enable future funding. The key characteristic of an accelerator is taking a start-up company (which already has a Minimum Viable Product) through a very structured 3-4 month process. Actions and outcomes are required every 1-2 weeks.

As of November 21, 2022, Toronto has more than 97 incubators and accelerators2

  • Toronto startups also join incubators and accelerators elsewhere in Ontario, and around the world.

#5 Venture studios

A venture studio comes up with an idea, assembles a team of founders, and provides capital for the Startup. A venture studio has some combination the of the following 6 characteristics:3

  • The Guild: The internal resources of a venture studio. Includes a strong core team of startup operators, financial capital, space, connections, and infrastructure.
  • The Idea: venture studio either generates ideas internally or sources them externally.
  • The Structure: venture studio either operates as a holding company or has a holding company and VC fund.
  • The Funding: venture studio provides the financial capital to source, test, and validate the idea but then have the option to continue funding in-house or seek outside investment.
  • The Volume: The number of startups to work on at any one time is a differentiating factor among venture studios.
  • The Focus: venture studios either operate as generalists or specialists within an industry, technology, or region

As of Nov 21. 2022, Toronto has more than 43 funding organizations.  Countless more from around the world invest in Toronto based startups.2

#6 Angel investors

There are individual angel investors as well as angel investor groups. Angel investor groups have government supported infrastructure (e.g. staff, office space), but the government does not provide capital to startups applying to the angel investor groups.  The capital comes from the angel investors.

 #7 Funding platforms

  • Non-equity. This may only be a donation, the investor may receive some type of tangible award, or the investor receives a future product once it is available. g. Kickstarter
  • Equity and debt. The investor does get equity or debt. The OSC (Ontario Securities Commission) has several prospectus exemptions which a crowding platform may utilize.  Depending upon the legal structure of the platform, and investor characteristics, an investor may be able to invest any amount.   g. AngelList, Gust.
  • Private placement e.g. DealSquare.

#8 Equity Investment Funds

  • There are a large number based in Toronto. There are many funds outside of Toronto and outside of Canada that also invest in Toronto startups.
  • Most have specific investment criteria e.g. where is company headquarters, type of customers or market, type of technology, whether or not the startup has a specific social purpose.

#9 Corporate Venture Capital

A large established company (not an investment fund)  takes an equity stake in a small but innovative or specialist firm, to which it may also provide management and marketing expertise; the objective is to gain a specific competitive advantage.

#10 Debt Investment Funds

  • Traditional bank loans, line of credit, etc.
  • Venture debt for startups and companies that don’t have significant assets or positive cash flows and therefore often don’t have access to traditional bank loans or material amounts of bank financing.

#11 Income revenue sharing funds

The capital is repaid from a percentage of the startups cash flow. E.g. Clearbanc.

#12 Investment dealers/underwriters

Sartups can raise equity by listing on the CSE (Canadian Securities Exchange), or on the TSX Venture Exchange.

#13 Organizations to buy or sell your company

These organizations will help you sell your startup, once it’s achieved some success.  They can also help you buy other companies.

#14 Organizations to meet your talent requirements

  • Outsourced or offshore talent providers. These provide contract resources.
  • Talent acquisition. There may acquire employees for the startup, from around the world.
  • Talent development. These aim to improve the capabilities of your existing talent.

#15 Associations

There are associations focused on specific types of ecosystem members e.g.

  • Angel investor groups e.g. AIO (Angel Investors Ontario), NACO (National Angel Capital Association – Canada), ACA (Angel Capital Association – United States)
  • Founders e.g. BFN (Black Founders Network)
  • etc.

#16 Advisors – legal, financial, functional

Every startup requires a range of advisors.  For example, financial software can collect and report on a broad range of information.  An accountant can advise on how to set the software up.  Lawyers are key to providing advice on the range of legal and regulatory requirements, and how best to meet them.

#17 Tools and services for startups

These address a range of issues including:

  • Understanding customers and users
  • Creating prototypes
  • Building and maintaining the solution
  • Marketing and sales
  • Customer onboard and ongoing
  • Billing, payment processing, payroll, financial reporting, etc.

#18 Reviews of startup companies

Some companies are focused on reviewing startup solutions.  Other companies enable reviews of startups as a sideline to their main business (e.g. job boards enable employee reviews of the CEO).

#19 Conferences

Conference organizers manage Toronto conferences focused on startups.  Many of the organizations in the Toronto ecosystem also host events.

#20 Regulators

Every startup needs to be aware of regulatory requirements as soon as they start raising capital.  Financial Services startups must be compliant with many more regulatory requirements.

#21 Federal government programs

Startups can benefit from tax credits, financing, and advisory support. When going global, Canadian trade commissioners are based in 160 global cities.  The startup Visa program enables a foreign employee with a job offer to quickly obtain a visa to work in Canada.

#22 Ontario government programs

The Ontario government has numerous programs.

#23 Municipal programs

Toronto has the Startup Here program and other programs.

#24 Ecosystem researchers

  • Some individuals and organizations analyze and publish research regarding the ecosystem e.g. Charles Plant
  • A variety of databases have collected different types of information regarding the ecosystem e.g. Crunchbase, HockeyStick, etc.

#25 Startup charities

The Upside Foundation focuses on startup companies donating stock options.

#26 Coworking space companies

Once the startup leaves the founders’ homes (or accelerator) they may move to a coworking space. Coworking spaces also enable a startup to quickly establish a global physical presence.

Footnotes

1 Adapted from Investopedia 2021 Jan 20

2 Startup HereToronto   https://startupheretoronto.com/startup-support/

3 https://medium.com/datadriveninvestor/how-to-differentiate-startup-studios-d3cb394e3ecf

 What further reading should you do?

What does the startup journey look like?

https://koorandassociates.org/the-startup-journey/what-does-the-startup-journey-look-like/

Is your startup planning to fail?

https://koorandassociates.org/the-startup-journey/is-your-startup-planning-to-fail/