What are the three types of talent successful companies require?

What is the purpose of this article?

To enable founders, investors, the board of directors, and the C-suite to discuss what type of talent is needed to create and maintain world-leading companies.  I recognize that many companies do not strive to be a world leader or leader in their own country.

You can download a PDF of this article from: What are the three types of talent successful companies require

How do you read this article?

This article uses the analogy of athletes that strive to win at the Olympics.  They seek to be the best in the world.

What are the three types of talent associated with global winners?

  • The team members. These are the people who actually have win the race. They must beat the competition in order to stand on the podium.
  • The trainers. They use a structured process to improve specific aspects of each team members skills e.g. using videos of the team members show what specific changes need to be made. The trainers are deep experts in specific skills.
  • The coaches. They focus on the members minds and mental state. For example, if an athlete cannot visualize in their mind what it looks like as they cross the finish line, they likely will never win. “People cannot do things they cannot imagine”1.  The athletes must also cope with frequent failure. Few win every single competition.

What are the characteristics of the journey to become a global champion?

  • There are fundamental differences between the team, the trainers, and the coaches. g. great coaches are rarely great athletes and great athletes are rarely great coaches.
  • It takes time to become a global champion.
  • People must have the ability to transform themselves, to learn, unlearn, and constantly improve.
  • No one stays a global champion forever.
  • The coaches and trainers change over time. Global champions are supported by trainers and coaches that are also the best in the world.
  • People need to have the potential to reach the next level. People don’t immediately jump to become global champions.
  • Not everyone will become a global champion. It is very competitive. Not everyone has the potential.
  • Very tiny changes in results differentiate global champions from 4th It could be a few hundredths of a second for an athlete.
  • Trying very hard, by itself, is not enough to become a global champion.
  • Luck also plays a role e.g. a leading coach becomes available; a competitor suffers an injury.

What are the three types of talent in your company?

  • The team is comprised of all of the company’s full and part-time employees. This includes everyone from the board of directors to front line staff.  The company is constantly developing the talent of its employees.
  • The trainers include external experts. (e.g. lawyers, accountants, consultants who are industry and functional experts), educational organizations, etc.
  • The coaches go by many names e.g. coach, strategic advisor, mentor.

What are the implications for you and your company?

  • In today’s virtual global economy, you may be competing against global champions, even if you’re in a local market. E.g. Nigeria’s largest ride sharing company is Bolt, based in Estonia, with a valuation of $4.3 billion.
  • It’s hard to become a global champion if your talent (team, trainers, and coaches) is not among the best in the world.
  • Talent around the world is constantly improving. The talent that was successful 20 years ago loses to today’s talent.
  • Growing the value of your company requires growing the value of your talent.

What are your next steps?

  • What is your company’s value creation plan: for the next 1-3 years; for the next 4-6 years?
  • What are the three types of talent you will need in the future?
  • What changes in talent are needed?
  • What is your ongoing process for acquiring, retaining, developing, and exiting your team talent?
  • What is your ongoing process for assessing and changing your training and coaching talent?

 Footnotes

1 Peter Jensen (Olympic coach), Igniting the third factor, Toronto, Performance Coaching Inc., 2008, page 105

How can the shareholders agreement focus everyone on value? V2

What is the purpose of this article?

This article discusses how a shareholders agreement in a private company could help focus everyone on value creation and extraction.

I am not providing legal advice. Please consult a lawyer if you need legal advice on creating, reviewing, or updating a shareholders agreement or other legal governance documents.

You can download a PDF of this article from: How can the shareholders agreement focus everyone on value V2

What are two types of shareholders agreements

#1 USA (Unanimous Shareholder Agreement)

“The written agreement among all of the shareholders of the corporation can wholly or partly restrict the powers of the directors to manage, or supervise the management of the business and the affairs of the corporation”1

#2 Voting trust or pooling agreement

“Some shareholders of a corporation may choose to enter into voting arrangements such as voting trusts, pooling agreements or shareholder agreements under which they agree to vote their shares in a consistent manner.  Voting arrangement of this sort….do not have the effect of reducing the powers and liabilities of directors”1

What are some potential shareholder expectations regarding their investment?

  • limiting some decisions to only the shareholders e.g. hiring, termination, and compensation of the CEO; sale or wind down of the company; terms and conditions of future financing.
  • requiring shareholder approval of various documents: e.g. Board of directors mandate, board committee mandates, company policies, strategic plan, budget.
  • defining the process used by the shareholders to make the above decisions and approvals.
  • defining what information needs to be reported to shareholders at what time and in what format.
  • constraining the business e.g. limit geographical operations, which products and services may or may not be provided, pricing.
  • defining the process and constraints for shareholders to sell their equity.
  • defining the dispute resolution process. This process could result in a forced sale of shareholder equity.
  • describing the ways specific shareholders extract value from the company e.g. dividends; products and services; future sale of shareholder equity.
  • describing how shareholders will support the company e.g. introductions; financing guarantees.

The shareholders may have other expectations as well e.g. the purpose of the company

Some or all of the above expectations might be included in the USA.

How might the USA impact on value creation and value extraction?

I assume the company has a value creation plan and the shareholders have a value extraction plan.  The plans can be directed and constrained by shareholder expectations which are in the USA.

What are the risks of not documenting the shareholder expectations?

The short-term risk is a series of immediate disputes, which could harm both value creation and extraction.  For example, what if the shareholders don’t understand and agree that some shareholder will extract value through low-priced products and services while other shareholders extract value through dividends arising from high priced services to customers. How will management create and execute strategies when they are attempting to limit profits and grow profits at the exact same time?

The long-term risk is that shareholder expectations could change, especially when shareholders are companies.  The companies’ strategies for their investment could change and new executives representing the companies could have different expectations.

What are your next steps?

  • Shareholders should discuss and document their expectations regarding value creation and value extraction. Agreement and consensus are not always required.
  • The challenge is to figure out how to reconcile conflicting expectations. (e.g. one founding shareholder might want to stay with the company for the rest of her life.  Another founding shareholder might want to exit and sell her equity in 5 years for maximum value). This expectation setting process is carried out without lawyers and there is no legal document as an outcome.
  • Then lawyers review the shareholder expectations document. The lawyers point out potential issues and risks, which may result in further shareholder negotiations regarding expectations.  The shareholders decide among the legal options.
  • I assume that the USA will be one of the selected options. The lawyers must craft this.  The process of creating the legal USA may well results in more issues, requiring a negotiated update to the shareholder expectations document.
  • The lawyers will have to craft a dispute resolution process into the USA which is able to deal with future changes of shareholder expectations. Potential outcomes of dispute resolutions include: sale of the company, existing shareholders buying out some other shareholders.
  • The shareholder expectations document needs to reviewed on a regular basis and must be reviewed every time there is a potential new shareholder or change to an existing shareholder.

Footnotes

1 Barry Reiter, Bennett Jones LLP, Directors Duties in Canada, 5th edition, Page 95

Further reading

How can founders and investors create a shareholders agreement?

https://koorandassociates.org/corporate-governance/how-can-founders-and-investors-create-a-shareholders-agreement/

How profitable is angel investing? V2

What is the purpose of this article?

  • Share with you some fact-based profitability analysis from the U.S. angel community. I am not aware of similar detailed fact-based based analysis of the Canadian angel community.
  • Enable you to think about whether or not you want to make money as an angel investor and what you might have to do to make money.

You can download a PDF of this article from: How profitable is Angel Investing V2

There are three ways to look at angel investing profitability data.

  • As an overall asset class, considering a large number of angel investors.
  • As an individual angel group or angel fund.
  • The profitability of an individual angel investor, such as yourself.

You have the potential to make money as an angel investor if:

  • You or your co-investors have deep market knowledge of each portfolio company’s customers and market.
  • You devote significant time to due diligence.
  • You remain involved with the company post-initial financing.
  • You have the financial resources to create a diversified portfolio of at least 25 companies and to make follow-on investments.
  • You can wait 10 years to achieve a significant financial return.

How profitable has angel investing been in the period leading up to 2007?1

This study examined the results from of 1,137 exits ((acquisition, IPO, or company closure) from 539 angel investors in angel associations over a 20-year period, with most of the exits occurring after 2004. The average return was 27% (excluding out of pocket costs and assuming zero value for the investors’ time).

Due diligence had a large impact on investor capital returns.

  • Angels who spend less than 20 hours have an average return of 1.1X capital.
  • Angels who spend more than 20 hours have an average return of 5.9 X capital.
  • Angels who spend more than 40 hours have an average return of 7.1 X capital.

Investor knowledge of the portfolio company’s industry had a large impact on capital returns.

  • Investors with at least 14 years of relevant industry experience had double the capital returns of investors who did not have relevant industry experience.

Ongoing involvement with the portfolio company (e.g. coaching and mentoring, being the lead investor, serving on the advisory board or board of directors) has a large impact on investor returns.

  • Angels who interacted with the company twice a month achieved a 3.7X return.
  • Angels who interacted twice a year received a 1.3X return.
  • Interacting more than twice a month does not improve returns. The quality and type of interaction was more important than frequency.
  • 52% of all exits were at a loss.
  • 7% of the exits returned more than 10 times the money invested, and accounted for 75% of the total returns.
  • 39% of the investors had portfolios that lost money.
  • The top 10% of investors earned 50% of the returns.
  • 45% of the startups had no revenue when they received the angel investment.

How profitable has angel investing been in the period leading up to 2020? 2

The data scientists at AngelList analyzed 10,665 investor portfolios. The analysis showed that the realized and unrealized IRR for all of the investments is 15%. The 2007 study above only examined realized IRR.

The median IRR return for investors is heavily driven by the number of companies in their portfolio.

  • 50 company portfolios had a median IRR of about 10%; 11% of these investors lost money.
  • 20 company portfolios had a median IRR of about 7% ; 16% of these investors lost money.
  • 10 company portfolios had a median IRR of about 6% 32% of these investors lost money.
  • 1-5 company portfolios had a median IRR 0%.

What has been the performance of some individual angel funds in the U.S. in 2020?

The ACA (Angel Capital Association) Investor Insights report for 2020 shares insights from some large, long established U.S. angel groups.  My article does not name those groups.  You should refer to the report if you wish the names of the groups. The report is available to members of the ACA.

Angel group A analyzed 159 outcomes (exits and shutdowns) since 1997.

#1 A large portfolio is key to large returns

  • Equal sized investments in all the companies would have generated 4.8X return.
  • 3 of the 159 exits generated 74% of the total return.
  • Monte Carlo simulation showed that only 26% of investors with 5 company portfolios would have obtained 4.8X return
  • Even with a portfolio of 50 companies, there was only a 37% chance of achieving 4.8X return.

#2 Large returns require investors being able to wait 10 years.

  • It takes 4.5 years for investors to get their initial investment back. There are lots of failures in the first few years.
  • It takes 10 years to achieve 4.8X return. After 10 years, there is a very modest increase in returns.

Angel group B analyzed the return of their 27 members over 20 years.

  • A large portfolio is key to large returns. Investors with 25 company portfolios had 4.5 times the IRR return of investors with 1-4 company portfolios.

 Your next steps

  • Review your overall investment thesis e.g. what asset classes will you be investing in, why, and what expected returns (this includes volatility, and time to achieve returns)
  • Determine is angel investing would be a charitable activity or an asset class that is helping you achieve your overall investment thesis. Many angel investors are not interested in financial return, and their angel investments are not part of their financial return focused investment portfolio.
  • Define your angel investment thesis.
  • Determine if you have the skills, knowledge, and finances to create your own diversified portfolio or if you will invest with fund managers or if you will join a group of angel investors.
  • If you are investing with a fund manager you must do due diligence. It is key to analyze their cash returns over 10 years. I have come across many funds that include unrealized returns.  Unrealized returns are not cash in the bank. You will also have to assess their talent and processes.  If the funds returns are driven by only one exit, you have to determine if their overall results have been driven by luck or by knowledge, skills, experience, and processes.
  • If the fund manager is just starting their fund or has only been in operation for a few years, then you need to do more detailed due diligence, just as you would for any other startup. If you don’t have deep relevant experience in the fund industry, then you need some with that experience to work with you. Your due diligence focus will be on talent assessment and the fund’s investment thesis.
  • If you decide to invest via an angel investor group, you need to do due diligence. You need to asses whether the processes and talent will help you build and manage a profitable long-term portfolio. It is key to analyze the groups metrics and cash returns. One large U.S. angel group tracks 83 (yes 83) metrics for every investment made by a member. Some U.S. angel groups have detailed metrics regarding their members. If the group’s return is driven by one large exit, then you have to determine if their overall results have been driven by luck. Assess which members have deep relevant industry experience aligned with your angel investment thesis. Assess the angel group processes. If you don’t already have deep relevant angel investing experience, then you need help from those who have that experience.

Footnotes

1 Robert E. Wiltbank, PhD Willamette University, Warren Boeker, University of Washington, “Returns to Angel Investors in Groups, November 2007”

https://www.angelcapitalassociation.org/data/Documents/Resources/AngelGroupResarch/1d%20-%20Resources%20-%20Research/ACEF%20Angel%20Performance%20Project%2004.28.09.pdf

2 “How portfolio size affects early-stage venture returns”, Nigel Koh and Abfraham Othman, AngelList, https://angel.co/pdf/lp-performance.pdf

Further reading

Are you an angel investor or a gambler?

https://koorandassociates.org/selling-a-company-or-raising-capital/are-you-an-angel-investor-or-gambler/

What is strategy and strategic planning? V2

What is the purpose of this article?

Enable founders, board directors, the C-Suite, and advisory board have a discussion about their company’s process for strategy and strategic planning.

You can download a PDF of this article from:  What is strategy and strategic planning V2

How do you define: strategy, strategic planning, and the strategic plan?

  • What is strategy? The facts, assumptions, and analysis of what successful future scenarios for the company could look like. A successful future means growth in value.  Value of the company and value for key members of the ecosystem.
  • What is strategic planning? The process to engage key members of the company’s current and future ecosystem members in order to discover a potentially implementable strategy.
  • What is the strategic plan? The strategic plan should be called the value creation plan. The strategic plan communicates the actions necessary to grow value and reach the successful future.

What are the questions the strategy must answer?

The facts, assumptions, and analysis of  what successful future scenarios for the company could look like. There are 7 sets of questions to this:

  • Who are the current and future members of the company’s ecosystem that are critical to the company’s success?
  • What is the vision for the future company?  How will the ecosystem perceive the company? Why will those critical ecosystem members enable the company’s success?  What metrics will those members use to assess value and success?
  • Who will be your future cash-paying customers? Why will they buy from your rather than the competition?  How are their problems and needs being better addressed by your solution than the competition? How are you enabling your cash-paying customers to achieve more value?  Why are customers buying from the competition rather than you? How many cash-paying customers will there be? What will be the market size. You may be in different markets with different customers. Customer needs will change and there will be new unmet needs. What will be the customers’ ecosystem? (e.g. Technology trends, demographics, politics, regulation, etc.)
  • What will customers perceive as the competitively differentiated value proposition? What will be the customer experience? How will customers perceive that your company meets their needs better than the competition?
  • Who will be your future competitors? What improved products and services will they be offering? Old competitors will likely disappear and new competitors emerge. (e.g. New ventures, entrants from adjacent markets). What will be the competitors’ ecosystem?
  • What are the characteristics of the future talent requirement? Board of Directors? Advisory Board? C-Suite? Coaches? Employees? Advisors and Consultants? Often skills and capabilities that brought the company to its current situation are not the skills and capabilities that are required for future success.
  • Is it clear what the future value of the company will be to key members of the ecosystem (e.g. shareholders, employees, and society) and how that value compares to the current situation?

Good analysis done by good leaders with good judgement often produces poor strategic decisions.1

A strategic decision is on of those relative rate major decisions that has a major business impact. E.g. bet-the-business investment; major M&A; major new product/service launch; business transformation’ etc. A McKinsey survey of 2,207 executives regarding the quality of their 1,048 strategic decisions revealed that:

  • Only 28% thought good strategic decisions were frequent;
  • 12% thought good strategic decisions were infrequent; and
  • 60% thought bad strategic decisions were as frequent as good strategic decisions.

What has the greatest impact on company performance? McKinsey found that it was the quality of the decision-making process. The % of company performance improvement due to:

  • Quality of the decision-making process: 53%
  • Industry/company characteristics: (e.g. consumer tastes, implementation resource capability) 39%
  • Quality and detail of analysis: 8%

The strategic decision-making process is much different from the normal day-to-day decision making.

What does the strategic planning process need to consider?

Strategic Planning: The process to engage key members of the company’s current and future ecosystem members in order to discover a potentially implementable strategy. Too often I’ve met companies where the consultants have said “We developed a great strategy but the company could not implement.” A strategy that cannot be implemented is not a great strategy. Strategic planning is a learning, and unlearning, process.

There are 8 sets of questions around strategic planning:

  • What is the purpose of your company?
  • Do you have the right talent involved in strategic planning? The decision makers must have a value growth mindset and capabilities in value creation.
  • What the process for answering the 6 strategy questions outlined above?
  • How will you get input from key members of your company’s ecosystem?
  • How will you get support form key members of your company’s ecosystem? E.g employees
  • What will be the indicators you are constantly monitoring to identify if immediate changes in your strategy plan are required due to changes in: customers, competitors, and the ecosystem. In today’s world, there is unlimited capital available to a competitor whose solution customers want to open up their wallet to.  Those competitors can rapidly grow in a few years and destroy your company.
  • Who is accountable for achieving the measurable results? g external customer metrics (How many potential customers have a problem/need for which they are willing and able to pay for your solution? How do the customers perceive they are getting more value from you than from the competition?) internal customer metrics (customer acquisition costs? customer lifetime profitability? By channel, partner, customer segment, and cohort?).
  • Does the strategic planning process result in the company’s value creation plan?

What are your next steps?

  • Document your current process for creating and maintaining your strategy and strategic plan.
  • Does your current process address the above questions and challenges?
  • What changes do you need to make to your process and the talent involved in the process. If talent cannot change themselves or be coachable, then replace the talent.
  • We live in turbulent and rapidly changing times. The strategy and strategic plan may need to change at any instant because facts and assumptions have changed, making decisions and plans obsolete. Every board meeting must begin with a discussion regarding the facts, assumptions, and analysis underlying the strategy and the strategic plan.  The CEO must have a similar discussion at the start of every meeting with her executive committee.

Footnotes:

1 “The case for behavioural strategy”, McKinsey Quarterly 2010, Number 2

 Further reading

What is the purpose of your company?

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

How do you grow your company’s value?

https://koorandassociates.org/creating-business-value/what-is-value-growth/

Traditional strategic planning dooms companies to failure

https://koorandassociates.org/strategy-and-strategic-planning/traditional-strategic-planning-dooms-companies-to-failure/

“Does your board really add value to strategy?”, Professor Dieder Cossin and Estrelle Metayer, IMD Global Board Center

https://www.imd.org/research-knowledge/articles/board-strategy/

What is the difference between strategy and tactics?

https://koorandassociates.org/strategy-and-strategic-planning/what-is-the-difference-between-strategy-and-tactics/

Networking is key to value creation.

What is the purpose of this article?

Provide some insights into how networking can support value creation.

You can download a PDF of this article from:  Networking is key to value creation

What is networking?

Let’s focus on business networking.  The are other types of networking, such as finding a new job. The following article uses the example of why a CEO would network.

Business networking is creating and maintaining a group of relationships which can potentially help the success of the company and the CEO’s personal success.  The relationships are potentially of mutual benefit.  The group of relationships as a whole will be key to success, but not every single relationship will turn out to be valuable.  Relationships are based on trust and understanding.

 What are some of the potential networking benefits to the CEO?

Networking can provide value to the CEO, the CEO’s organization, and to society.  This can be part of the CEO’s life-long learning and un-learning.

  • Exchanging ideas and getting fresh ideas.
  • Sharing and gaining new knowledge.
  • Sharing and gaining different perspectives.
  • Figuring out and getting answers to a question.
  • Being able to find other people who can help e.g. if the CEO wants to learn about taking a private company public and wants to find other CEOs who have done this.
  • Benefits to the company e.g. a private company CEO staying in touch with potential strategic buyers.
  • Being broadly known and having a reputation in case the CEO needs to find a new job.
  • Developing a pool of potential board directors, C-Suite candidates, or CEO successors.
  • Meeting their purpose in life and values by helping others when there is no personal or company benefit e.g. mentoring MBA students.

Who might be in the CEO’s network?

This is based on the networking benefits the CEO wished to achieve. Networking members could include:

  • Leaders and advisors from a broad spectrum.
  • Leaders and advisors who have a deep knowledge of the company’s customers, marketplace, and ecosystem.
  • Ecosystem members such as: customers, investors, regulators, competitors, and journalists.
  • If doing MBA mentoring, then other mentors, university leaders involved in mentoring, etc.

What are the benefits to people for being in the CEO’s network?

These benefits are aligned with the benefits to the CEO.

  • Exchanging ideas and getting fresh ideas.
  • Sharing and gaining new knowledge.
  • Sharing and gaining different perspectives.
  • Figuring out and getting answers to a question.
  • Being able to find other people who can help.
  • Benefits to the company e.g. strategic buyers staying in touch with potential acquisition targets.
  • Board directors developing a pool of potential board directors, C-Suite candidates, or CEO successors.
  • Meeting their purpose in life and values by helping others when there is no personal or company financial benefit.

What is the greatest challenge to growing and maintaining your network?

Individuals are overwhelmed with electronic information.  2009 University of California, San Diego study estimated that the average American was receiving 100,000 words a day, about 34 gigabytes of data.1  A McKinsey Global Institute study in 2012 also estimated 100,000 words a day.2

People don’t have the time to:

  • respond to every email, text, LinkedIn msg, etc,
  • read all the articles
  • respond and connect with every connection request
  • have regular coffee or Zoom calls with everyone they know.
  • etc.

How do you maintain your network?

There are many ways to maintain your network of mutually beneficial relationships.

  • When you need some sort of help, advice, or discussion.
  • When you provide some sort of help, advice or discussion.

How do you grow your network?

  • Your network members proactively do introductions.
  • You ask your network members for introductions.
  • You do “cold call” requests for connecting.
  • You respond to “cold call” requests for connecting.

What are some approaches for maintaining your network?

  • One-on-one meetings: face-to-face, Zoom, phone.
  • Individual emails, LinkedIn messages, or texts.
  • Social media updates e.g. LinkedIn.
  • Broader emails, personal newsletter.

Your next steps

  • Define your personal value creation plan.
  • If you are a leader, define your plan to increase your company’s value.
  • Define your plan to increase your value to society.3
  • Determine how networking would impact the above three sets of values.
  • What are the kinds of people you need to network with over the coming years, based on the above value impact?
  • How much time will you allocate to networking?
  • Create a structured process for creating and maintaining a network of relationships. Your process will recognize that people will enter and leave your network and that the degree of closeness and engagement with individuals will change over time.

Footnotes:

1 University of California, San Diego  “UC San Diego Experts Calculate How Much Information Americans Consume” Dec 9, 2009

https://qi.ucsd.edu/news-article.php?id=1630

2 Daniel H. Pink ,To sell is human, (New York: Riverhead Books, 2012), page 159

3 Exhibit 6 on page 8 of this McKinsey article raised the questions of “What you can be paid for” and “What the world needs”  These questions apply to you and an individual and to your company.

https://www.mckinsey.com/business-functions/organization/our-insights/seven-essential-elements-of-a-lifelong-learning-mind-set

Further reading

If you’re going to ask someone to do an introduction

https://koorandassociates.org/creating-business-value/if-youre-going-to-ask-someone-to-do-an-introduction/

Transformation success depends upon human behaviour change.

What is the purpose of this article?

Enable founders, the board of directors, CEOs, and other leaders to discuss the role of human behaviour change in achieving transformation success.

You may download  a PDF of this article from: Transformation success depends upon human behaviour change

Why do transformation efforts often fail?

Individuals do not change their behaviour, actions and decision making to support success.  Individuals may resist the transformation and even actively try to make it fail.  These individuals include customers, employees, and other individuals within the company’s ecosystem. The success of digital transformation, outsourcing, and cost reductions ultimately still depends on individuals changing their behaviour.

Most individuals prefer stability to the uncertainty and lack of control associated with change, and see more reasons for “don’t do” rather than “must do”. People look for reasons that activities cannot or should not be done.   People don’t carry out activities or the activities are late.  The quality and intent of the change is not carried out – people focus on being able to “check off” that they did something, while the underlying objective of the change is not achieved.

The failure may be evident only far after implementation is complete.  This is often seen when companies undertake major mergers or acquisitions and the expected revenue increases and cost reductions do not occur, at which point observations are then made that the “company cultures” were not considered, which is fundamentally that the resistance and support of the internal individuals was not assessed and planned for during decision making, planning and implementation.

There are 5 ways individuals will respond to transformation.

  • Active resistance e.g. taking deliberate action to resist the transformation and to cause failure. Spreads destructive rumours and misinformation.
  • Passive resistance e.g voices opposition, allows failures to occur. I call this “malicious compliance”.
  • Apathy, compliance e.g Go along with the transformation. No negative or positive comments regarding the transformation. Show little interest in the transformation.
  • Agreement e.g. agrees with the change, tries to avoid failure, agree with transformation when asked
  • Enthusiastic support e.g. Champions the change, seeks ways to enable success

What determines how individuals respond to transformation?

Individual emotional and intellectual perception of the transformation is driven 5 factors

  • What will be the day-to-day changes to behaviour, decision making, and actions?(e.g. processes/procedures, how to interact and work with others inside or outside the organization).
  • What will change in the individual’s environment changes (e.g. salary, benefits, who they work for, who their colleagues are, the work space, the technology they use, etc.).
  • How is the individual’s perception of their identity, value, or their future is impacted (e.g. career path, chance for promotion, perceived status, value of their knowledge, skills and past experience).
  • How are the individual’s purpose, values, morals, and ethics impacted and the alignment with the company’s purpose, values, morals, and ethics?
  • How consistent is the transformation with the company’s purpose, values, morals, and ethics?

The perception of the personal impact of change is determined by the individual.  A change which company leaders believe is “minor” may be perceived as “massive” by individuals.

What is the one factor that ensures transformation failure?

If individuals do not trust their leaders and do not believe what they are being told, then there is no reason for their emotional and intellectual perception to be positive. The individuals’ personal ecosystem may be providing mis-information and false rumours.

What is the leadership challenge with transformation?

Transformation can be very different from leaders past experience.  Past experience may often have focused on using analysis and logic to enable change.  Formal authority (i.e. the “Manager” tells people to do things differently) may have been the basis for driving change.  Transformation requires a new set of leadership skills e.g. being able to put themselves into the heart and mind of others, understanding what causes emotional reactions, how to behave and communicate in order to manage emotional actions, etc.

If the leaders are unable to transform themselves, then the broader transformation will fail.

Your next steps

  • Determine which individuals in the company’s ecosystem must support the transformation to enable success.
  • Assess how those individuals will respond based on their perceptions of the transformation. You’ll initially make assumptions and then validate by engaging the individuals to understand what they perceive.
  • If the transformation is at risk due to negative perceptions, too much resistance, and too little support, what changes do the leaders need to make?
  • Assess the degree to which employees and the company’s ecosystem trust what leaders say.
  • Is there sufficient trust to enable transformation success? If not, what changes do the leaders need to make to themselves?

Further reading

What is business transformation?

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

How do you succeed with transformation?

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

Why is trust critical for transformation?

https://koorandassociates.org/business-transformation/why-is-trust-critical-for-transformation/

If you’re going to ask someone for an introduction.

The purpose of this article

Identify some things for you to think about before you ask someone to do an introduction for you.

You may download a PDF of this posting from: https://koorandassociates.files.wordpress.com/2021/04/if-youre-going-to-ask-someone-to-do-an-introduction.pdf

What made me wonder about the introduction process?

  • Recently a friend of mine asked me to do some introductions for his daughter, who has just finished 1st year university and is looking for a summer job. I asked some relevant people I know. Many of whom agreed for me to do an electronic introduction, leaving it to the daughter and the people I know to then connect directly.
  • But that made me wonder. Why did I do the introduction?  No financial benefit to me.  Why did people accept?  Each of them said there were no jobs available for the summer.  No financial benefit to them.

Who are the three people involved in the introduction process?

  • The seeker – the person seeking an introduction e.g. my friend’s daughter.
  • The introducer e.g. me .
  • The introducee e.g. the person or people I know.

Why is the seeker asking for an introduction?

  • Address a short-term financial need. g. need a job, need a sales lead.
  • Address an information need. g. learn how to find a job, learn how law firms recruit lawyers.
  • Build new relationships which might be of value in the future. Each individual relationship will not be of value but the pool will be. A relationship implies long-term communications and interaction.

Why does the introducer agree to do any introduction?

  • Knows the seekers and is will doing to do favour. May also believe that the seeker will then “owe a favour”.
  • Believes the introducee may be able to help the seeker in some way.
  • Believes the introducee might learn something.
  • Knows that the introducee has a current problem or issue for which the seeker might have insights or be able to solve.
  • Believes the introducee might have a future need for someone like the seeker.
  • Some seekers pay for introductions. E.g. sales leads.

Often there is not short-term value to the introducer.

Why does the introduceee agree to the introduction?

  • As a favour to the introducer.
  • Believes may be able to help the seeker in some way.
  • Believes might learn something.
  • Has a current problem or issue for which the seeker might have insights or be able to solve.
  • Might have a future need for someone like the seeker.
  • Some seekers pay for introductions. That is not my model.

Often there is not short-term value to the introducee.

Why will the introducer decline to make an introduction?

  • The relationship with the seeker is seen as too little value to warrant any effort.
  • Too busy.
  • Believes there is no value to the introducer or introducee.
  • Cannot think of a single potential introducee.
  • Does not want to help for a wide range of reasons.

Why will the introducee decline the introduction?

  • Too busy.
  • Believes there is no value to the introducee.
  • Perceives the introduction as a “sales call”.
  • Does not want to help for a wide range of reasons.

What might an introduction process look like?

  • The seeker determines why they are looking for an introduction, the type of introduction, the characteristics of a potential introduce, the potential value to the introducee, and potential introducers.
  • The seeker asks a potential introducer to make one introduction. It’s only one, in order to minimize the effort of the introducer.
  • The seeker prepares for the introducer, perhaps in an email:
    1. Why seeking an introduction and with whom;
    2. A few sentences about the seeker.
    3. A link to the seeker’s LinkedIn profile.
  • The introducer asks one introducee they know if open to an introduction. The information is point 3 above is shared with the introducee.
  • The introducer then sends one email to the seeker and introduce, thus allowing them to connect directly with no further effort on the part of the introducer. The introducer should include a sentence or two about the introducee.
  • The seeker needs to thank the introducer.

Not every introducer will make an introduction for you.  Not every potential introduce will tell the introducer that it’s ok for an introduction.

Your next steps.

Prepare your own introduction process.

Why is trust critical for transformation success? V2

What is the purpose of this article?

Illustrate some of the reasons why trust is critical for transformation success.  This article is appropriate for any size company undergoing major change.

You may download a PDF of this article from: Why is trust critical for transformation success V2

What does successful transformation require?

People within the company and its ecosystem need to change. These changes can include:

  • Learning new skills and unlearning old ones;
  • Gaining new knowledge and unlearning old knowledge and experience;
  • Learning new processes and techniques and unlearning old ones;
  • Learning new behaviours and unlearning old behaviours; and
  • Potentially new values and culture and dropping old values and culture.

Successful transformation requires individuals to transform themselves.

People may transform themselves when they:

  • Believe there is personal value to them and/or to those they care about;
  • Understand why the current situation is not viable in the long-term;
  • Understand what the future looks like and the path to the future;
  • Feel some sense of control over their future;
  • Believe the leaders have heard and understand individual concerns;

Why does transformation fail?

  • Individuals see no reason to transform because they don’t trust what their leaders are telling them.
  • Individuals don’t transform because they emotionally resist being told what to do without understanding.

Going from a slowly-changing business to transformation makes visible:

  • All the issues with lack of trust in management; and
  • Management’s inability to deal with all the emotional factors of trust and resistance to change.

Your next steps

  • Determine the degree to which your employees and others in your companies ecosystem trust and believe what you say.
  • Define what changes in you values, moral, ethics, behaviours, and actions are required to improve trust.

Further reading

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/

What is business transformation? V2

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

How do you succeed with transformation? V2

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

 

How do you succeed with transformation? V2

The purpose of this article

The purpose of this article is to outline an overall framework to consider in any type of transformation.  This article does not discuss the details of each specific type of transformation.

You may download a PDF of this article from:

Click to access how-do-you-succeed-with-transformation-v2.pdf

What is the structure of this article?

  • What is business transformation?
  • What are the symptoms of a need for transformation?
  • What is driving the need for transformation?
  • Transformation usually fails.
  • What needs to be considered when setting the targets and outcomes of transformation?
  • What are some general transformation principles?

 What is business transformation?

Transformation is described in terms of the changes to the company’s business model. The business model describes how a company creates value for itself while delivering products or services to C&U (Customers and Users).

 There are five types of transformation. Each type of transformation will have its own specific approach and objectives, reflecting the need to address both symptoms and the underlying driving factors.

#1 Restructuring

#2 Turnaround

#3 Operational Transformation

#4 Business Model Transformation

#5 Strategic Transformation

Your corporation may need components from different types of transformation.

Startups often pivot, which may be a business model transformation or a strategic transformation.

Further reading:

What is business transformation?

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

What is a business model canvas?

https://koorandassociates.org/the-startup-journey/what-is-a-business-model/

 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 new customers is exceeding new 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.
  • Not being able to meet payroll or meet covenant requirements in financing.
  • The overall market size is shrinking.

What is driving the need for transformation?

There are four core factors driving the need for transformation:

  • The customers and users don’t perceive that the company’s solution is better than the competition, resulting in the symptoms shown above.
  • The company’s internal operations are no longer profitable or effective.
  • The market size is shrinking.
  • The company’s leadership has decided on strategic transformation. g. Google started new businesses such as phones.

Leadership failings (at both the board of directors and C-Suite) often are the underlying foundation driving the need for transformation.

Further reading:

Do you need to transform your company?

https://koorandassociates.org/business-transformation/do-you-need-to-transform-you-company/

 Transformation usually fails.

  • Major changes almost always fail. 12% of change programs succeed; 38% produced less than half the expected results; 50% diluted the value of the company.1
  • Efforts to recover a poor business (i.e. transformation) typically fail. Fortune 500 (1998-2013). 33% of the companies grew; 35% went bankrupt or were acquired; 32% stalled.  Only 10% of the stalled companies recovered.  Of the recovered companies, 75% returned to the core business and 25% redefined their business model.2
  • More than half of M&A deals destroy value for investors.3

Further reading:

Is your company planning to fail?

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

What needs to be considered when setting the targets and outcomes of transformation?

The targets and outcomes of transformation should position the company for successful long-term value creation in a changing and competitive environment. There may be conflicting problems, needs, and objectives which need to be reconciled. Decision making must consider the following 8 factors:

#1 What are you company values?

The values guide decision making and behaviour of the entire company including the board of directors.  The values may encompass morals and ethics.

Further reading:

Why are values, morals, and ethics important?

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

#2 What is the purpose of your company?

Why does the company exist?  What needs of society (other than selling to customers and providing a return to shareholders) does the company meet?

Neither Larry Fink (CEO of Blackrock, which has close to $9 trillion of assets under management), nor the 1981 US Business Roundtable, believe that the board of directors and CEO’s overriding objective is to maximize profit and shareholder value.

Larry Fink, in his 2018 letter to CEOs, said “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate…..Without a sense of purpose, no company, either public or private, can achieve its full potential…..And ultimately, that company will provide subpar returns to the investors.”4

In 1981 the US Business Roundtable published a corporate governance report with stated: “Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.” “Business and society have a symbiotic relationship: The long-term viability of the corporation depends upon its responsibility to the society of which it is a part.  The well-being of society also depends upon profitable and responsible business enterprises”.5

Further reading:

https://www.bcg.com/en-ca/publications/2017/transformation-behavior-culture-purpose-power-transform-organization

#3 What are the current problems and needs of the stakeholders you’re considering?

Stakeholders may include:

  • Customers
  • Employees
  • Suppliers, partners
  • The community

#4 What are the current and future needs of customers who are both willing and able to pay?

  • Understand the current and future market size.
  • Understand how the current customers perceive the value they achieve from your solutions relative to the competition.
  • Consider the example of Blackberry. The number of customers who had problems and needs that could be addressed by a keyboard-based phone shrank dramatically.  Any transformation that ignores shrinking demand may lead the company to extinction

Further reading:

Do you understand your customers?

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

#5 What are the current and future actions and capabilities of your competitors?

  • Competitors will continue to change and improve.
  • New competitors will arise.
  • Competitors will respond to your actions.

#6 What are the external trends?

Trends may include:

  • Technology
  • Demographics
  • Competitor actions
  • Changing expectations, of stakeholders

#7 What are the future scenarios?

External trends, the competition, and the changing problems, needs, and expectations of stakeholders all results in a variety of future scenarios.

#8 Will the transformation targets and outcomes result in long-term value creation in all future scenarios?

What are some general transformation principles?

#1 Assess how the board of directors provided value during the journey leading up to the need for transformation.

  • Does the company have a competitively differentiated board of directors, in terms of their ability to enable long-term value creation?
  • How has each individual board director provided value in the years leading up to the need for transformation?
  • Does each board director have the relevant current experience and capabilities to provide value?
  • How did the board regularly assess whether or not the appropriate CEO was in place?
  • How did the directors ensure that there was a relevant pool of internal and external CEO successors, as well as a successor development process?
  • How did the directors ensure that there was a relevant pool of internal and external director successors, as well as a successor development process?
  • Is each director able to transform themselves with new and relevant experience or are replacements required.?

Further reading:

How can the board of directors provide value?

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

“Does your board really add value to strategy?”, Professor Didier Cossin and Estelle Metayer, IMD Global Board Center

https://www.imd.org/research-knowledge/articles/board-strategy/

“Corporate Boards need a facelift”, Eric Kutcher, McKinsey, May 04, 2018

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-strategy-and-corporate-finance-blog/corporate-boards-need-a-facelift

#2 Transparent Communications and Trust:

  • People need to understand why they must personally change and why the status quo is not an option. The urgency is based upon the facts of the current situation and a rationale regarding the scope and type of transformation.
  • Two-way communications are critical. People must see that management is listening to them.  If management doesn’t’ listen, it’s quite likely that people won’t listen to what they’ve been told.
  • The communications are focused on, and relevant to, the target audiences. For example, telling the call centre staff that the only reason the call centre is moving offshore is to improve profits will likely increase change resistance and decrease trust with the leadership.
  • Explain the need for transformation, and its related changes, in terms of the company values and purpose.

Further reading:

Why is trust critical for transformation success?

https://koorandassociates.org/business-transformation/why-is-trust-critical-for-transformation/

#3 Accountability

Be clear on who is accountable for achieving outcomes and benefits.

#4 Integrate transformation into the business

  • Existing planning and management processes and policies may need to be revised to reflect the transformation.
  • A transformation office may necessary in the short-term to make these changes.
  • A transformation office that works outside of existing planning and management processes for the long-term will create resistance to change and will not produce sustainable change.

Your next steps

  • Define the transformation plan, including scope, objectives, and outcomes.
  • In a parallel activity, define the overall framework as described above Collect the current facts and assumptions. Facts are often out of date.  Often there is confusion between facts and assumptions. Information may need to be collected directly from stakeholders.  g. how do employees and customers perceive values and company purpose?  To what extent do board decisions and actions reflect values and purpose?  These may be quite different from formal values and purpose documentation.
  • Analyze the transformation in the context of the overall framework. This analysis could take place as the transformation is being implemented.
  • Don’t wait until you are forced into transformation. It may be too late by then.  Conduct your framework analysis before there is a need for transformation.

Footnotes:

1 “It’s 8-1 against your change program”, Bain website, Managing Change Blog, 2017 June 23

https://www.bain.com/insights/its-8-to-1-against-your-change-program-how-to-beat-the-odds/

2 “The Founder’s Mentality”, by Chris Zook and James Allen, 2016, page 105

3 “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

4 https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter

5 Ralph Gomory and Richard Sylla, “The American Corporation”, April 2013, page 6, The Wall Street Journal http://online.wsj.com/public/resources/documents/50b74ca9c91e6TheAmericanCorporation11292012.doc.pdf

 

Do you need to transform your company? V2

The purpose of this article,

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

You may download a PDF of this article from:  https://koorandassociates.files.wordpress.com/2020/11/do-you-need-to-transform-your-company-v2-1.pdf 

Successful companies rarely have to transform

Customer needs, the competition, technology, the economic and political climate are constantly evolving and changing.  Successful companies understand the outside world and evolve as the world around them changes. Successful companies rarely have to transform.

The company evolves at the same pace as the customers and ecosystem

  • Customer needs evolve. The company is aware of emerging new customer problems and needs and makes changes to meet these problems and needs.
  • Competitors discover that your customers have some unmet needs and that these needs become more important than the needs your company’s solutions were addressing.
  • Technology is regularly evolving and is adopted by the company. E.g. the internet, big data, Artificial Intelligence, etc.
  • New business processes, practices, and models emerge and are adopted by the company.
  • The company monitors external trends (e.g. shareholder objectives, competitors, suppliers, the economy, regulations, workforce demographics, politics/government, industry consolidation, new entrants, etc.) and makes changes before there is a major impact or crisis.

 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 new customers is exceeding new 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.
  • Not being able to meet payroll in the short-term or meet covenant requirements in financing
  • The overall market size is shrinking.

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

What is driving the need for transformation?

There are four core reasons for transformation:

  • The customers and users don’t perceive that the company’s solution is better than the competition, resulting in the symptoms shown above.
  • The company’s internal operations are no longer profitable or effective.
  • The market size is shrinking.
  • The company’s leadership has decided on strategic transformation. g. Google started new businesses such as phones.

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. This means driving or causing evolution.

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 “Often the board of directors and C-Suite do not know that their company is in crisis.”

Further reading

  • 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/