For the last few years, owners considering selling their business have faced a difficult environment.  The lack of credit availability forced most financial buyers to the sidelines, and bad economic conditions caused strategic buyers to conserve capital, and focus their efforts on cost cutting.   Compounding the problem, many potential sellers have seen the financial performance of their business flatten or decrease, causing valuations to decline.  The result:  owners interested in selling have been biding their time waiting for the environment to change.  In the meantime, these owners haven’t gotten younger; their offspring that didn’t want to – or couldn’t – run the business still don’t/can’t; and in many cases, their retirement accounts have shrunk and currently earn paltry returns.  The clock is ticking.

But if you listen to people in the business of making deals happen - lawyers, accountants, intermediaries, and strategic advisors  – the tide may be turning.  The debt markets have thawed which helps financial buyers get back in the game.  Strategic buyers seem to believe they have done enough cost cutting, and now they need to grow – and an acquisition is often the fastest way to fill a gap in their growth strategy.  

As for the supply of businesses to buy, there are forces at work there too.  Listen to what LKQ Corp . (LKQX ), a nationwide provider of aftermarket collision replacement products that has grown primarily through acquisition of privately held businesses, had to say in their recent earnings release Q & A session when asked about it:

“The acquisition environment is absolutely the strongest deal market we have seen…… And I would say we are overhearing two things in terms of seller motivation, one is certainly the lack of clarity of what capital gains rates are going to be in that sphere….But I think the other thing we are starting to hear …. the fact that the liquidity of many owner-operators - that’s really been choked and the owner operator who used to be able to borrow say $0.60 in the dollar on the basis of his inventory or inventory and receivables, now his bank says that’s about 20 or 25%…..”.

Much has been written about the coming expiration of the Bush tax cuts  at the end of 2010.  And although no one seems to know for sure what the tax rates will look like, everyone seems to be in agreement that taxes will go up.  Anecdotal evidence abounds that the threat of these tax increases is driving business owners to try to get deals done by year-end.  But the larger issue may be the “fatigue” that has set in as a result of running a business in this environment.  Sure the majority of businesses made it through the recession intact, but at what cost?  Layoffs, cash flow problems, and fights with stakeholders have left many business owners tired.  If you listen closely, a lot of them are saying, “…it just isn’t fun anymore”.

Our take on the rest of this year: there will be an increase in deal activity, but if a company hasn’t started the process by now, they will have a hard time getting a deal done in 2010.  Over time, we believe that transaction values adjust to market conditions – including seller tax rates -  so those owners really wanting to sell will do so no matter what happens with that variable.   

Based on the conversations that we are having with ready and willing buyers – and tired business owners,  the next 18 months could be very busy.

I’m a huge fan of Formula 1  - arguably the pinnacle of motor racing.  If you don’t know anything about it, you can learn more here.  

I attended last weekend’s Canadian Grand Prix and despite having attended many F1 races over the years – the excitement of the racing, and spectacle of the weekend never gets old. 

There are three new teams in F1 this year, and they are struggling to keep up with the established big boys like Ferrari  and McLaren.  I  got to thinking about the similarities – and differences – between success in starting up a business, and success in starting up a new team in F1.   

1. You need more money than you think.  F1 is incredibly expensive and the new teams have to scramble to be competitive with established teams that have substantially more resources (team budgets are capped at 40 million pounds annually - that’s about $60 million!!).  All three of the new teams have spent the money faster than they anticipated and one or more may not make it to the end of the season.  As for start-ups…. I have been reading a lot lately about the “death” of venture capital and angel investing because of the ease in which a company can be started with little to no capital.  Don’t believe it.  Of course there are examples of firms that start from scratch, but most business enterprises need capital to grow and prosper – and they woefully underestimate how much money they will need to do so.
2. BUT… Money does not guarantee success.  Toyota  entered F1 in 2002 and over the next several years spent several hundred million dollars before their exit in 2009 with exactly “0″ (zero!) wins to show for it.  Start-ups that are well-funded have an advantage - but without a sound plan, the right offerings to an eager market, and sound execution – they will end up in the same place.
3. Strive for incremental improvement.  The difference between winning and losing in F1 is measured in seconds.  The new teams take each day and try to squeeze a little more speed and a little more reliability out of their cars and drivers.  New businesses need to do the same.  Immediate “home runs” are rare in the business world, and the best companies strive to make progress every day, week, and month.
4. In the beginning, finishing the race is a victory.  There is a saying in motor sports that you can’t win if you don’t finish.  For the new F1 teams, finishing a race is a legitimate first goal.  Start-ups are often in the same situation.  The latest SBA stats show that new businesses have a 50% chance of surviving the first year.  But once you get past that first year, the survival rates increase dramatically.  Slow and steady often beats the high-flyer.

Of course there are a lot of dissimilar characteristics, as well.  F1 teams are heavily dependant on advanced design and technology – not all businesses are.  F1 teams compete under a set of (usually) consistent rules – most businesses do not.  Finally, motor racing is a dangerous and life threatening sport - I hope your new business isn’t that exciting.

If you have a chance to catch an F1 race, you should do it – you just might learn something about your start-up!

I’m somewhat of a software geek.  I try out new software packages all the time on my laptop as I am always looking for the latest tool (toy)  to try and be more productive.  Unfortunately, it seems like a ”universal law” that as time goes by my laptop gets more cluttered, and filled with unnecessary stuff and the memory gets used up by programs that really don’t matter.  Over time, the machine starts freezing up and acting funky.  Usually I delete some stuff and reboot the computer and it runs better for a while, but every so often I just need to start from scratch and do a clean reinstall of the software.  The process is frustrating and time consuming, but after the clean-up, the laptop is lean and mean and runs like new again.  It’s kind of like pushing a giant reset button.

We spend a lot of time with clients “pushing the reset button” on some of their projects and initiatives.  I’ve written before on the problem we see in so many organizations.  It’s easy for businesses to fall in love with new ideas and start initiatives to solve current problems.  But similar to my laptop  - business projects and initiatives get too complicated over time, and there are often too many of them happening at the same time.  The competitive landscape changes quickly, and what seemed like a good idea when the project was started often becomes a resource hog and/or management distraction.  Ignoring the issue – like constantly rebooting my laptop - does not solve the problem.  

Unfortunately, the clean-up / reset process is not easy.  Many business managers can’t get past the sunk costs and resources of stalled initiatives.  It can be difficult to explain to the participants that an initiative or project they have spent time on is no longer necessary.  And sometimes, a business is too far down the road and just needs to slog through a project and finish it - often with diminished expectations. 

The key to successfully navigating the issue is to develop a process where the various projects and initiatives are measured and progress is regularly reported.  Initiatives that are taking longer or using more resources than expected should raise red flags.  Just as important, the management team should continually question the relevance to the business.  Would we start this same project today?  Are the underlying assumptions for the project the same as when we started?  Can we still afford the resources for this project?  If the answers are “no”, it’s almost always better to “cut bait” than continue wasting limited resources.  

It’s easy for me to get enamored with the newest software for my laptop - and it’s easy for businesses to be convinced that another initiative will help solve a current issue.  It needs to become routine to stop and review what’s actually going in the organization.  It just might lead to a decision to push the reset button and start with a clean slate.

Seems like the news is constantly filled with business scandals, as a new set of villains become part of  the business culture every year.  These days  it’s Goldman Sachs , sub-prime lenders , and financial regulators watching porn instead of looking for illegal trades.  In the recent past it was Enron, WorldCom and Tyco, and in the 80′s it was junk bonds and Drexel Burnham Lambert.  The cycle repeats itself over and over.  Books will get written, laws will change (sometimes), and we try to learn lessons from the events so they don’t happen again.  But they do happen again.  

We like to think that people are inherently good, and they gravitate towards making the right decisions.  They usually do…. but all humans have flaws. We’re often motivated by the wrong things, and many of us are influenced by our surroundings and the actions of those around us.  We have written before about shaping the culture of a company and the impact it has on individuals within an organization.  In fact, you could argue that the actions of individuals in every one of these popular business scandals have roots in an organizational culture that allowed – or even fostered – the inappropriate behavior.  

There is a famous quote that I often hear attributed to Warren Buffet that says something like ”…. I look for people with integrity, intelligence and energy.  But without integrity, the other two will get you into trouble”.  Every organization – no matter the size – needs to promote integrity in everything they do, or risk the consequences.  Of course, most organizations talk about honesty and integrity - but their actions point to something different.  Think about your organization, and ask yourself some questions: 

• Is our organization’s interviewing focused on hiring for character as much as it is for skills and experience?
• Do we communicate the organization’s hard-to-measure values in addition to the easier-to-quantify goals?
• Do we share information freely throughout the organization?  Or is information (and its perceived “power”) held at the top of the organization?
• Do we treat our vendors well?  Are they partners… or perceived as places to cut costs and squeeze cash flow?
• Maybe most important these days:  does the company ”own up” to mistakes? ….. with customers? …. with shareholders? …. with the public?  

These aren’t the only questions that indicate integrity in an organization, but the answers point to some trends.  And answering “yes” to these types of questions does not guarantee that an organization is immune from poor performance, ineffectiveness, or scandals.  But answering “no” to these questions certainly points to behavior inconsistent with a culture of fairness and integrity.  

An organization that’s not built on integrity is a house of cards – totally unable to support the weight of increased pressure and the expectations of the marketplace.  That’s how people who want to do the right thing – don’t.  It’s often why scandals happen. At the core, great products and services, and great people are critical to success in your organization.  But it’s all for naught if your culture is not built on integrity.

Did you know that Earth Day is April 22, and it’s the 40th year that we will celebrate an Earth Day!?  So what are you doing to celebrate?  On that Thursday, you will probably go to work like millions of other Americans.  I cannot think of a better place to celebrate Earth Day. Let’s celebrate Earth Day by insuring that your office has a robust recycling program and encouraging your fellow employees to actively participate in the recycling program.

The recycling industry has evolved to the point where you can now co-mingle most of your most commonly used recyclable items into one bin - this is known as single stream recycling. In its most basic form, you simply place all of your office paper and beverage containers (glass, plastic and aluminum) in one recycling bin.  This adds convenience to your office recycling program and eliminates the clutter caused by multiple recycling collection bins to handle the different recyclable materials.

A robust office recycling program starts by making a deeper commitment than just a recycling bin in the office lunch room.  You can start by insuring that there are recycling bins at each desk. Then strategically place recycling bins near the high use areas, one next to the copier and fax machines, one next to the soda machine and refrigerator and of course you can leave the one you already have in the lunch room. In addition to collecting your standard recyclable items you can recycle other office products such as ink cartridges from your printers, copiers and fax machines. Also, talk to your IT department and insure that they are recycling all old office and electronic equipment like computers, copiers, fax machines and cell phones.

Next is the tricky part.  Everything is in place to collect the recyclables, but now you need to ensure participation. You can strategically place posters next to the areas where your recyclable items are typically found, like the copy machine, the fax machine and in the lunch room. If you are overly ambitious you can have your IT department change everyone’s screen saver to have a message about recycling.  I have found that guilt is a wonderful motivational tool, so don’t be afraid to use it. You can also recognize people for participating in your recycling progam, maybe give the “Recycler of the Month Award” and reward them with a lunch, a gift certificate or a ½ day off.

Now there is one final thing that you must do to complete the recycling cycle –  BUY RECYCLED.  The recycling loop isn’t complete until the materials collected at curbside and drop-off sites are remanufactured into new products and purchased by consumers.  Look for the symbol below and the words “postconsumer”.  Postconsumer means that the product is made from materials collected through recycling programs …like yours.  (It is also important to understand that not every product made from recycled content is labeled with this symbol).

Some of the benefits of your efforts:

• The energy savings from using recycled paper when making new paper products is about 35%, for plastic it is 75%, for glass it is 25% and for aluminum cans it is 95%.
• Every ton of paper made from recycled materials conserves, 7,000 gallons of water, 4,000 KWh of electricity and 60 lbs of air pollutants (not including CO2).
• Recycling approximately one ton of paper saves 17 trees.
• 10% of the oil consumption in the US is for plastics, this equates to 2 million barrels of oil per day.
• Although plastics account for only 8% of the waste by weight, they occupy about 20% of the volume in a landfill due to their low bulk density.
• Americans discard enough aluminum to rebuild our entire commercial air fleet every 3 months.
• One recycled aluminum can saves enough electricity to run a computer for three hours.
• For every ton of recycled aluminum cans we reduce the carbon dioxide emissions by almost 14 tons.
• Every ton of recycled glass used saves 700 lbs of carbon.
• For every ton of recycled glass used it takes 1.2 tons of virgin raw materials.

Let’s celebrate and make this 40th Earth Day one to remember…… every day!

I am big fan of LinkedIn and I’m more convinced than ever that it is the most important social networking site for business professionals.  There are various opinions on the use of Facebook vs. LinkedIn (two of my favorites…..Veronica Ludwig: here and Liz Kelly: here), but for my money, LinkedIn is a necessity for business networking.  

With more than 60 million registered users, LinkedIn has been around since 2003 and can be considered a “mature” social networking site.  As such,  they are constantly making changes and adding features.  As a frequent user, I have my favorite parts of LinkedIn and definitely some pet peeves.  We have helped several clients make the most of LinkedIn, and there are a couple of things you might want to consider to make your use of LinkedIn more effective.  (I’ll skip past the basics, like adding a professional picture, posting links to your website, blog, Twitter account, etc, because if you are serious about using LinkedIn, you are already doing those things!!)

• Only connect with people you actually know.  This is a fairly contentious issue and many disagree with me,  but I believe that your connections have more value to you and others if you actually have a relationship with them.  I just don’t see the benefit of having connections that you haven’t actually met, don’t really know much about, and will not interact with beyond the invitation.  
• Keep your connections open.  I have written about this before, but unless you are a psychiatrist I can think of no good reason to hide your connections from others.  It completely defeats the purpose of on-line networking.  And that includes recruiters – social networking isn’t supposed to be a one way street. 
• Utilize the add-ins that LinkedIn make available.  You can post pdf files and PowerPoint presentations, and publicize your blog.  It makes your profile stand out from others, and you should think of it as free, real-time publicity for you and your firm.
• Be careful when integrating Twitter and Facebook feeds.  LinkedIn has made it possible to have all of your Facebook and Twitter status updates display as status updates in LinkedIn too.  Unfortunately, the frequent posts on these more social websites look a lot like spam on LinkedIn.  The last thing you want to do is spam your business connections.  (tip: as a LinkedIn user, you can turn off receiving these updates on a user by user basis.  I’ve done it for several connections who pump out Twitter and Facebook updates all day - even some close friends!)  

The social networking landscape seems to change on a daily basis, but LinkedIn keeps gaining in popularity and usage.  It is a wonderful tool to network, stay connected and publicize yourself and the business.  Take advantage of it.

We talk to companies and their investors almost every day about the difficult decisions surrounding whether or not to raise/invest additional capital given the current economic climate.  Most of them have come to understand that growing a company organically today  – without investing additional capital - is like trying to grow flowers in the shade.  It’s time-consuming and frustrating, and you end up with more weeds than anything else.  But spending money is no guarantee of success, and additional capital continues to be difficult to come by.     

Early in my career, I had a job as a corporate weenie reviewing significant capital expenditure requests for a giant company.  We prioritized and pushed along the best ones for senior management approval, and rejected the others.  My boss at the time loved to say that each of these requests should have such a compelling business case and be so well documented that a monkey could make the correct decision.  (… today, I imagine him sitting at a desk somewhere with his pet chimp struggling to write a book called “Investment Decision-Making for Dummies” … priceless). 

I suspected then, and I know now - business investment decisions are never easy.

It is critical to understand that no matter how desperate the business needs it;  no matter how compelling the business case is; and no matter how many market studies and projection spreadsheets are created for justification;  there is always one wild card in each of these decisions – competing uses for that same capital.

Every investor has alternative uses for capital.  Friends and family investors have bills to pay or other investments like college tuitions and retirement accounts.  Angel Investors are bombarded with lots of great ideas (and they have those same personal investment decisions, as well).  Venture Capital investors are looking for the newest ideas with “home run” potential.  Private Equity investors are collecting management fees and hiding from limited partners in their offices (just kidding … sorta).  Large “strategic investors”  – like a business’s competition or suppliers - have the internal struggles between investing in the current business, or looking outside for growth.  Even companies that are generating enough cash to reinvest in the business have difficult decisions to make about the best use of that capital. 

Despite what my former boss told me, it’s not easy to make these decisions, and sometimes projects and companies with a great business plan and complete analysis and documentation don’t get the capital they need.   Ultimately, making capital allocation choices is a balance of strategic thinking and risk assessment and I believe it usually separates great managers and investors from the average ones.

Our advice to those seeking capital is to do the homework, and understand the risks in the business.  It’s almost always about finding the right match – someone who thinks your project is the best use of their scarce capital at that point in time.  Use the advice and criticism you get to improve the plan, and don’t take rejection personally.  Keep networking and talking to everyone that will listen, and if you believe in your plan – don’t give up.

How many times have you been drinking a beverage and paid attention to what is printed on the container? If you are like me, you very rarely notice the “Please Recycle ” label or the recycling logo on the container.  For the most part we know that the beverage container is recyclable and we don’t really need to be reminded.  And we would like to think that more often than not, most of us deposit the beverage container in an appropriate recycling bin.  However, as is often the case, we assume wrong.

Did you know that Americans go thru 35 billion plastic bottles annually? But only about 25% of these are recycled and of those recycled less than 1% are reused in the manufacture of new bottles.  And using recycled plastic only takes about 10% of the energy it takes to make a bottle from virgin materials.

Glass containers contain only 25% recycled content and using recycled glass results in an energy savings of about 33%.  The great thing about glass is that it can be recycled over and over without losing any of its qualities, its life is virtually endless.

Aluminum does a little better, each aluminum can is made from just over 50% recycled aluminum. Energy savings from using recycled aluminum is a whopping 95% versus using virgin raw materials.

The most commonly recycled product is paper. About 56% of all paper is recycled in the United States. Using recycled paper saves about 60% of the energy that it takes to make paper from virgin raw materials.

So the best we can do is to recycle about half of the time. What if your employer only paid you for half of the time that you worked?  It would be time to make a change, right?  Well, I think it is time to make a change with regard to recycling.

So what can you do about it?  Here are a few suggestions:

1. “Please Recycle” at home. Most curbside collection programs include the basics, cardboard, newspaper, plastic beverage bottles, plastic detergent bottles, glass containers and aluminum cans. Most municipalities will have a section dedicated to recycling on their web site and there you typically will find a list of materials that can be included in your recycling bin.

2. “Please Recycle” on the go. The beverage companies have done a great job of making their product available wherever we may be, whether it be at the mall, a sporting event or even at the park. However, it is sometimes difficult to find a recycling container anywhere close. Rather than taking the easy way out and throw it in a trash container, take it home and throw it in your recycling bin at home. I know this is a hassle but let’s start doing the right thing instead of the convenient or easy thing, just think of the energy savings stated above.

3. “Please Recycle” at work. Many office complexes offer recycling programs and they have evolved into “single stream” systems whereby you can put not only your paper but any beverage containers into the recycling bin. And if your company or office does not have a recycling program, inquire as to why.  Most companies today have developed sustainability or “green” goals and recycling should be an integral part of those plans.

So next time you grab a beverage container, take a moment and notice the “Please Recycle” label. Then do your part to heed their advice.

While watching my daughter’s freshman basketball game the other night, I couldn’t help but think to myself, “this has got to be the dumbest offense that I have ever seen”.  The coach had all 5 girls standing behind the 3 point line and probably only one of them could score from there; certainly not my daughter.  After watching the game for some time, I finally figured out that he was attempting to spread the court so that the point guard could drive to the basket.  I guess that he figured it was best to play 4 players “out of position” so that one player could utilize her skills and possibly score.  It’s certainly a strategy…. but I don’t think it’s a very good one.

One of my favorite athletes and probably the best basketball player of all time – Michael Jordan  - is a perfect illustration of my point.  Early in his career, his coach Phil Jackson, used to preach to Michael that there is no “I” in team and Michael used to respond but there is in “WIN”.   However, the Bulls did not become a great team, nor win a championship until Michael heeded his leader’s words and began utilizing the talents of his teammates.  Who can forget - other than Phoenix or Utah fans - Michael passing the ball out to the wing to John Paxson , and again to Steve Kerr  and those two “role players” making crucial baskets at critical moments in those championship games.   They had positioned themselves perfectly and Michael Jordan capitalized on this.  (Ok …. by now you have figured out that I am a basketball junkie).

Organizations are very much like sports teams.  They are comprised of talented people with differing skill sets.  The key to an organization being successful is to understand the different skills of each of their employees and to put them “in position” to be successful.   It’s not easy to do today where resources are generally scarce,  and it has become even more important that each member of the team understands their role and is always ready to contribute.   

Figuring out if you have put your team in the right position to score – or your organization in position to capitalize on opportunities – is tricky.  It takes time, and you will make a few mistakes along the way.  The key is to recognize these errors in judgment and make the appropriate changes.  Everyone wants to contribute, and I have found that talking to your employees and getting their feedback can go a long way in helping put them “in position” to be successful.

During these critical economic times you need to ask yourself … does your organization have people “out of position”?

I have watched NBC’s recent late night TV debacle with a mix of bewilderment and dismay.  A cursory review makes it seem like it all revolves around egos and ratings and local NBC affiliates.  But I think it comes down to poor decision-making by NBC’s leadership, and the end result might end up being remembered in the same way in corporate annals as New Coke  and Ford’s Edsel.

Organizations have to make decisions every day.  Most of them are not “game changers” and the best organizations have a culture and put processes in place to make them fairly routinely.  I believe good decision-making separates the best executives/ business owners / organizations from everyone else.  But every so often , an organization has to make a HUGE decision.  One that impacts the foundation and often, the future of the company.  It may be an enormous opportunity… it may be a response to a competitor… it may be hiring or firing a key employee.   People used to call these “bet the farm” decisions. I like to use a newer analogy for these huge decisions that is borrowed from No Limit Texas Hold ‘em poker … going “all in“. 

At any point in a No Limit Texas Hold ‘em game, a player can declare himself  ”All In”  and bet everything he has on the hand he is playing.  The reward for winning is an immediate doubling of his chip count and often forcing competitors out of the game .  But if the player loses the hand, he is out of the game.  In Texas Hold ‘em, you can’t play safe and hedge your bets forever.  If you want to win the game, you almost always have to go “all in” at some point to drive the other players out.  The comparison isn’t perfect, but I don’t think it’s much different in business. 

Like a lot of companies that face these huge decisions, I think NBC tried to play it safe. They attempted to make both Leno and Conan happy instead of moving forward with one or the other and then dealing with the consequences.  They hedged their bets and now are in a situation where they cannot win.  Hey…. these decisions are HARD, and no one wants to be the CEO that makes the wrong call, but that’s what the job entails, and I think the leadership at NBC didn’t take that challenge.

I would never advocate going “all in” any time the opportunity arises.  Both New Coke and the Edsel were “all in” bets that lost.  The best players / business leaders are the ones who have a keen sense of timing, and can make these decisions weighing the risk/reward of a bold move.  In fact, sometimes the best move is the one you don’t make.   But all too often, organizations let these opportunities pass by, and then wonder why they aren’t growing, or why they always seem behind the competition.  …. Or maybe why they can’t please both of their franchise stars. 

It’s not easy and it’s not always fair, but there will be times when you have done the homework and the timing seems right.  That’s when you have to push all the chips into the middle of the table and go “all in”.