Mind the Gap!
When I saw this phrase in the London Tube I was
perplexed. What gap? Where? Why was this warning plastered all over the
walls and floor of the subway stations?
Then as the train approached the platform and a thundering
herd of commuters jockeyed for position on the trains, I soon realized the
warnings purpose: the Gap to be Minded
was between the curve of the platform and the straight line of the train.
In that small and seemingly insignificant space tremendous
danger lurked. A missed step is all it would take to lose a foot, or worse. And then it hit me. The Gap is where all danger resides. And so often we overlook the Gap, especially
when it seems inconsequential.
So I have made ‘Mind the Gap’ my mantra because it is where overlooked
risk resides. And as a business owner, it is the number one place you should
focus when evaluating your exit strategy.
You are not alone if your Gap looks like:
- Running out of time to ‘fix’ the company before needing to transition.
- Realizing the business is overly dependent on your relationships and reputation with customers, vendors, professional advisors and bankers.
- Acceptable, yet somewhat status quo operating performance, and little motivation among your key managers to change.
As you examine the
Gap, does it seem to grow deeper, and darker?
What you are looking at is a Value Gap: characteristics of your business that will
increase risk and marginalize performance.
And this means not getting top dollar from an acquirer. External buyers will compare your business to
others, especially as the market gets crowded with other sellers hoping to exit.
If a buyer sees impediments to growth, marginal performance or an over reliance on
your management of the company, they discount your value, or worse take a pass.
How to Bridge the Gap?
There are dozens of good solutions but only one that will absolutely yield a positive ROI: invest in your
management team.
A Kaufmann Foundation whitepaper on valuation indicates professional
investors weigh the strength of the management team as 3X more valuable than
the quality of the sales channel; and 2X more valuable than the competitive
market position. This is because
management teams make things happen.
Getting your key managers on top of their game prior to
exit will increase that valuation multiple. But it will also improve the
business basics like top and bottom line performance. Buyers see this and
conclude the prospects are good for future performance, reducing their risk and
increasing your reward!
Three Mission
Critical Action Steps to Improving Management Team Value
Focus your attention on these pivotal activities and you
will realize a substantial ROI:
- Provide your key managers with the skills and motivation to function as a high performing team.
- Transfer your ‘institutional equity’ to your successor, or to your management team members.
- Keep key managers engaged with compelling incentive packages which support your exit goals.
Acquirers, both strategic and financial look for exceptional
teams and will pay up for them. As an
owner, you want such a team too.
So start Minding the Gap by investing in your team today. You
can begin by making a few lists:
- What are your team’s strengths and weaknesses?
- What do only you know that is critical to company success?
- What incentives do your managers have to stay with your company?
In our next three
blogs we will share details about how you can implement each Mission Critical
Action Step to improve management team value.
Check back often to make certain
you don’t miss these surefire tactics to achieving your valuation goals.
