Geographic expansion - how to make it work and not lose your shirt (2/5)

In our last post we looked in overview at the four steps companies can take to stack the deck in their favour in a geographic expansion. These are common-sense measures applied in the 30% of expansions that make money after 2 years, and missing in the two-thirds that spend 40% of their senior team's time to set up an initially loss-making and ultimately closed subsidiary.

In this post, we look in detail at three elements of the first step, taken before even looking at a new geography: preparing the company internally.

First is to create a clear, replicable business model, if one doesn't exist already. An employee from head office should be able to go to the new office and know exactly what to do without changing work habits. Without this, the new office will be at best completely autonomous and at worst in constant conflict with head office, either failing to second guess or having to constantly check on every step it takes. Chaotic environments that thrive by winging it, or companies that change tack rapidly at the whim of their current CEO, create chaos-squared when they expand. In the words of a now-global business consultancy: "If our existing model wasn't easily definable, then the new one certainly wouldn't be either - it would have caused complete confusion."

Second is to make sure that there is clear accountability and agreed decision-making processes in place. In most cases, this means having one person with the remit and decision-making power for the new office, before any decisions have been made. If that person can project manage, then all the better.

Third step is to introduce a consistent review and evaluation process that can be applied in the same way to the same standards across all offices, with head office being able to crack the whip to make sure the process remains standardised.

Bain & Company is a classic example of this disciplined approach. Bain is considered a cult within the consulting sector, with an intensive standardised induction programme where new recruits become "Bainies" before being let loose inside the company. Read a Bain presentation or review a Bain project plan anywhere in the world and it looks the same, because everyone goes through the same training programmes. Every Bain office uses the same set of 6 month performance benchmarks in a consistent global review process. With consistent processes and performance standards worldwide, clients have the same experience whichever office they work with. This tightly-managed simple business model has enabled Bain to grow into a genuinely global consultancy, attracting some of the world's top talent and serving some of the world's largest companies year-on-year.

In our next post, we'll cover the next step in stacking the deck in your favour: choosing the right geography.

Geographic expansion - how to make it work and not lose your shirt (1/5)

33% of geographic expansions are not in existence two years later and only 31% are profitable. Successful attempts require commitment: profitable expansions take up large amounts of senior management time, on average 28% of it. This sounds like a major investment to make something work, until you realise that unsuccessful expansions took up even more time, on average 39%; i.e. the senior management of these businesses spent 2 days of every weak creating either a loss-making international presence or one that would close within 48 months. (Source: Latitude study of 74 international expansions).

In this five-part series we will look at common characteristics of geographic expansions that have been profitable and sustained. Today's post gives an overview, which we'll cover in more detail in subsequent posts.

Successful expansions followed four stages, which are essentially a series of steps to stack the odds in the company's favour, and are summarised below. There were exceptions, but this is the rule:

1. Prepare the company for geographic expansion

Create a clear replicable business model that can adopted easily by the new country team and can serve cross-geography teams.

Ensure that there is a clear agreed accountability and decision making process between head office and any potential new country or region teams, i.e. who is responsible for what.

Develop a consistent global review and evaluation process with no differences between offices.

2. Select the right country or region to enter

"Follow the money" - set up to serve existing clients with significant budget over a long time frame AND where the market offers long term possibilities, i.e. follow your best long term clients but don't follow them into a backwater.

Choose a location where you have knowledge, experience and contacts.

3. Prepare the market for entry

Warm up the market with existing relationships where head office can give introductions to buyers - never go into any market cold.

Recruit, or ideally transfer, local sales people and nationals who have local budget-holder relationships and know the local language and culture. The ideal person is a country national who has worked for you for years, the next best is recruiting that same national several months in advance of opening in the new country.

4. Commit to the chosen geography

Take one country at a time and make each successful before moving onto the next.

Have conviction - commit to the geography only if you know you want to be there long term. Don't dabble in markets.

Bed in the business by taking time to integrate new recruits properly into the company.


We'll expand on each one of these stages in subsequent posts, and give good and bad examples of each.

To give some perspective on the benefits of investing in such a deliberate approach and following these stages, clients of ours that have taken this approach have on average grown local sales by 25% annually, all have been profitable within 12 months, and new offices have supported international growth by an average 10% annually.


Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.

How to write an effective business plan (2/3)

In our last post we covered some of the common errors we see in plans we review. In this post we cover the key aspects of an effective plan.

Writing an effective plan

Be clear about who and what the plan is for

You need to think about this to determine what is in the plan and how much you need to explain. The plan is confined to information and context relevant to the target audience to achieve this end. For example, a plan used to attract an external investor will need a market section explaining the fundamentals; one used to generate Board agreement about a new course of action may only need a commentary on recent changes or trends.

Convince yourself first

A good plan needs to convey both passion and credibility. Credibility is the factor that is almost always lacking. The harder the plan writer challenges his own thinking and his own assumptions, the more credible and higher quality the plan. Your own concerns and lack of clarity will come out at some stage during the process, so you need to be the one that takes control - test and pre-empt them before someone else does.

Realise that the plan is step one of many

The most successful, well-written plan will not be the single killer step that by itself secures investment, agreement to proceed, or whatever the ultimate objective may be. It is only step one, to be followed by meetings, questions and challenges.

The role of the plan is to help clarify the opportunity for all involved and build your credibility, so that subsequent discussions are productive and focused on how things are going to get done.

Be brief and clear

The plan needs to contain enough to describe the opportunity, why it is attractive, how you are going to exploit it, and no more. If you are enthusiastic about the opportunity, you will be able to write at-length, most likely well beyond the tolerance level of most readers. You will need to be deliberate in your efforts to bring out the most important points, reduce redundancy, and be clear and specific about anything that is open to interpretation. Use the document to intrigue the reader, not cover every angle.

That covers the key characteristics of the most effective plans we review. In our next post we outline contents of a typical plan.


Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.

How to write an effective business plan (1/3)

Business plans are vitally important documents, both for raising investment and for generating common understanding about proposals for the future. Most of these plans take weeks to produce, and many are written with the help of corporate finance advisors and other professionals. We have the pain and privilege of being a paid reviewer of plans, and the frightening reality of our experience is that most of them sit somewhere in the range of poor to terrible. However, most of the problems can be fixed with some simple disciplines.

In this three-part post, we list the most common errors we see, and some recommendations for writing a more effective plan.

Common errors

The plan is too long

No one will invest straight off the back of a plan. If they are intrigued by it, they will want to meet you and find out more. The plan needs to be sensible, but if they invest, they are investing in you. They will be backing your ability to achieve the plan or, more likely, something just as good when life inevitably turns out differently. So your objective is simply to say enough that the reader can decide that they either want to meet you or that they are not interested, and no one’s time is wasted as a result.

Whoever your target reader may be, they need to read the plan in one sitting and retain what they read. This means you have 10-20 pages to get your plan across. You cannot possibly detail every idea, initiative and piece of evidence in a ten-page document. So your challenge for the plan is to summarise the important points, just enough to whet a reader’s appetite and either entice them to want to meet you or decide quickly that it’s not for them.

The plan is overtly optimistic, ignoring the risks and negatives

Plan writers naturally try to put their idea across as positively and attractively as possible. This is natural, and it is important to be positive and put across your passion; but most plans end up as blatantly optimistic sales documents, with little thought to risks and downsides. Unfortunately, this propensity increases with the use of poorly qualified advisers.

Readers want to see their concerns being pre-empted and addressed rigorously in the plan, not dismissed or ignored. Your plan is an opportunity for you to put yourself across as a passionate but practical business person, and build your credibility before meeting potential investors. If the plan dwells only on the upside, you come across as unrealistic.

It looks like a filled-in template

Some sections of plans really are necessary most of the time. It’s rare that you don’t need a section discussing the relevant market trends, the distinctive differences of your service or the projected financials. However, crow-barring in a SWOT analysis or a Porter’s Five Forces puts you in serious danger of looking like an amateur business plan writer, rather than a smart professional with a convincing investment proposal. If a section adds to the reader’s understanding in a neat, focused manner, then go ahead with it, but blind application of template business tools will make your plan much worse.

It contains too many broad generalisations

Most plans focus on a specific opportunity in a specific market, but descriptions of the market and the opportunity are often so generalised as to be meaningless. If your plan is for home pet-sitting in London, showing how many millions of cats are bought every year in the UK is almost irrelevant.

Describe your service, your market and the reasons people will buy as precisely as possible. You will need to make assumptions, but as long as you state what they are and why they are credible or conservative, then you have a context that is meaningful to all involved.

It is written in language that impairs the readers’ judgment of the business

It is amazing how many people have a writing style that detracts from the quality of their thinking and business ideas. A business plan is a serious document that needs snappy, simple writing to get the point across: one idea per paragraph, one point per sentence. No sales-speak, no rhetorical questions, no use of complex technical language. Furthermore, too much business-speak is common in many plans but gives an impression of vague thinking and lack of real world practicality, it can be annoying and a turn-off for the reader. Language may not improve the appeal of your business but it allows the reader to clearly understand your thinking without distractions.

OK, that's what not to do. We cover key aspects of writing an effective plan in our next post.


Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.

How to write an effective business plan (3/3)

In our last two posts we covered the classic mistakes people make in writing business plans and some characteristics of the most effective plans we have reviewed. Classic mistakes are that the plan is too long, it is blatantly optimistic, it looks like a filled in template, it contains too many broad generalisations, and it is written in language that impairs understanding. Key steps used by writers of effective plans are: being clear who and what the plan is for, convincing themselves about risks before writing the plan, treating the plan as step one of many, and using clear language.

Now we review typical sections that we expect to see in some form in the plans we review:

Plan contents

The bullets below show a typical framework for a plan. This framework is a start point and no more than that. It needs to be cut and changed to tell the story you want to tell in the clearest, most relevant way. With the right mindset and style for the plan, you can adapt the sections below to get your idea across, and generate credibility and interest from your target audience.

Business Plan Template

Executive summary (1 page)

Summary description of the business containing enough for a person to understand it in 5 minutes. One paragraph each on:
– Business background (description of the business)
– Vision and strategy
– Relevant market background and trends
– Revenue and cost expectations (short summary table)
– Key next steps in implementation plan

Business description (1-2 pages)

Background
– Description of the products or services the business will provide, and why they are better or different than what already exists
– Description of the customer groups
– Any other relevant background needed to understand the business
– Any relevant history

Vision
– Description of your vision for the business that will get people excited. Include any tangible targets in terms of sales, customers, product performance, market share, etc.

Strategy
– Summary description of how the business will achieve the vision described above. Include relevant descriptions of how your product or service will developed and marketed, and any other important issues to get right, e.g. technology, sourcing products, etc

Market (1-2 pages)

– Description of the market including estimates of overall size and the opportunity for your product/service
– Description of any market trends that are relevant to demand for your product/service

Competition (1 page)

– Description of direct competitors and alternative products or services customers have to buying your products/services
– Explanation of why your product/service is better or different than the competition

Revenue streams (1 page)

– Description and quantification of all major revenue streams for a three year period, being clear about all assumptions

Costs (1 page)

– Description and quantification of all major costs for a three year period

Implementation plan (1-2 pages)

– Explanation of all major steps required to get business up and running, and performing in the first year. This is best done as a table describing with all major actions with deadlines and responsibilities

Financial projections (1 page)

– 3 year summary profit and loss account
– Description of all major investments

Team background and credentials (1 page)

– One paragraph on each of the team members

So there you have it. At its heart, a great plan will describe a great idea, supported by a great team, but will do so in a brief, clear way, that gets to the point and intrigues the potential backer.

The last plan we wrote was for a start-up sports team and it raised a £40m investment, from the first backer the team approached, within two months. The plan was short and simple with not a SWOT analysis in sight, but it was a great idea and had a great team. The plan was just step one.

Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.

Turning around distressed companies (3/3)

In the previous two posts, we covered the first four stages we see in successful turnarounds: establishing the facts about the business and its market; working out what went wrong to get the business into its distressed state; and, once the problems have been identified and solutions proposed, taking control of time and taking control of money in the turnaround process.

Once in control, the turnaround team needs to make the first steps to develop some momentum in the right direction.

5. Make a series of promises you know you can keep

At the start of a turnaround every party with an interest is worried: employees, shareholders, banks, creditors, business partners, customers and suppliers. Increasing their confidence is critical to making any progress.

It is in management’s interest to be proactive and make a series of promises, which it knows it can keep. Hitting these checkpoints is the most effective tool management has to build its credibility. The most basic, and likely required, is a revised budget, but other forward-looking checks are also helpful. With every check management hits and promise it keeps, it builds credibility and confidence, financiers become less stringent and heavily involved, customers and suppliers go back to their regular relationship with the company.

To be successful, this approach naturally works its way down the organisation. For the CEO to promise a series of financial achievements to investors, he needs to be confident that his team can deliver on their promises in each of their areas, and so on.

This approach also has enormous and innate internal benefits - hitting promises helps organisational self-belief when the company needs it most.

The most important characteristic of such promises is not that they are ground-breaking, but that they are achievable in short time. As the mantra went in IBM’s turnaround “win small, win early, win often”.

6. Change the team

We have never seen a dramatic change in the fortunes of a company without a corresponding change in the senior team. This means at least two or three changes in senior personnel, almost always including the CEO.

It is usually self-evident, and often self-selecting, who is engaged in the turnaround and who wants out. We believe it is the job of the CEO to check the attitude of each member of the team and make the decision quickly. We have yet to come across a successful turnaround CEO who has regretted changing the team or has said they did it too quickly. We also find that getting the right turnaround team together is predominantly a matter of attitude; aptitude rarely comes into it.

7. Simplify

Complexity is a double-edged sword in turnarounds. Companies often get into trouble when they have taken on too much; and when they are in trouble they try extra things to get out of it.

By definition, many of these are not working and at best create a mass of distraction that the business can do without.

When cash and time and goodwill are constrained, the business needs to concentrate on doing a small number of things well. This can mean reducing product lines, cutting or selling business units, outsourcing business processes or numerous other simplifications depending on the situation. Whatever is done, the process of simplification needs to go far enough to give the remaining activities the focus of management time and investment required to do them well.

So there we have it, the seven stages we have seen successful turnaround teams take that distinguish them from the 70-80% of turnarounds that fail:

1. Establish the facts
2. Understand what went wrong
3. Take control of time
4. Take control of money
5. Make promises you can keep
6. Change the team
7. Simplify

All of these things are common sense and relatively obvious, but all of them are also easy to duck or delay. Hopefully, this article illustrates that our clients that have performed successful turnarounds simply do the sensible things that experienced managers know they should be doing anyway.

Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.

Turning around distressed companies (2/3)

In our last post on successful turnarounds we covered the first stage: establishing the facts about the company's performance, particularly the often-disregarded investigations of whether the market remains attractive, if the competitive position remains secure, and what customers plan to spend with the company next year.

Having established whether the business has potential worthy of continued investment of time and money, the next stage is to understand what went wrong to get the company into its current sorry predicament.

2. Understand what went wrong

Companies we support in turnaround find themselves there for two generic reasons: either something major went wrong for a short time, usually loss of a dominant customer or a dramatic market change; or something minor went wrong for a long time, usually poor understanding of customer or product profitability, that led to misguided allocation of capital and resources. Either way, the reason for the problem needs to be flushed out and addressed. Any recovery plan is simply not credible without this process. In our experience, the forensic exercise to find the source of the problem is rarely difficult for fresh eyes.

It is tempting to blame market changes when things go wrong, and we hear this all the time. Sometimes market downturns do happen unexpectedly and these can land the company in trouble. So the company was unlucky. That doesn’t matter – the turnaround doesn’t hang on whether anyone was to blame or whether they were battered by fortune. What matters is that we need to establish whatever went wrong and fix it.

3. Take control of time

Senior teams, and particularly CEOs and finance teams, in distressed or turnaround situations, experience relentless demands on their time from all sides: owners, owners’ advisors, banks, banks’ advisors, customers, creditors, worried employees, worried Board members; the list goes on. At the same time, management is constantly harried by a series of apparently urgent tasks, each of which appears to be critical in its own way.

Tempting though it may be to heroically charge from fire to fire, coming up occasionally for air to report to lenders or answer questions from advisors; the senior team cannot possibly effect any sort of successful turnaround in such a responsive way.

The CEO needs to create breathing space for the business.

From our observation, the first thing successful turnaround CEOs do to achieve this is take control of time. They understand the requirement to accommodate communication needs and put out the urgent fires; but they also recognise the crucial necessity to protect the time that they and their team need to think, understand the problems in the business, formulate the plan, delegate and implement it. This protection takes numerous forms, such as establishing regular update meetings with all parties to limit repetition, setting weekly time aside to plan or talk to key customers; whatever it takes to promote the important so it is on par with the urgent.

4. Take control of money

Equally important to taking control of time is taking control of money, understanding where every pound is going and coming from. It goes without saying that the CEO needs to take decisive action on business solvency and a plan to return to profitability, which most usually means addressing cost. Where successful turnarounds differ is in the management of details, and the corresponding flows of money. The most effective turnaround CEOs we know make a habit of establishing and monitoring a realistic pipeline, creating a bottom-up budget and making the team accountable for every pound of income and spend.

In addition to problems of solvency and profitability, most companies in turnaround situations have issues with liquidity. Whereas profitability can be addressed internally by sensible planning and performance management, liquidity usually requires external support from financiers, ranging from payment holidays through to cash injections.

This liquidity brings breathing space that allows management to make calm, rational decisions that support long term survival and profitability. Without it, the company can end up in a frenzied cash and business chasing environment, of constant triage with an eye only on today’s problems.

The senior team has numerous tools at its disposal to persuade financiers or creditors to extend liquidity: the CEO’s personal turnaround track record, the business pipeline, the bottom-up budget, evidence of future customer spend or market growth, a plan to address what went wrong. But management’s strongest card, and now a regular requirement from lenders, is to make the liquidity conditional, i.e. making continued or extended financing subject to hitting a number of agreed goals. We cover this in our next post.

Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.

Turning around distressed companies (1/3)

Turnarounds of distressed companies rarely succeed. Here are some observations of what I have seen to work.

First, to be clear, the common definition of a turnaround is very broad. It is basically about improving performance from bad to good. At one extreme, turnaround stories are about turning an under-performing company into a world-beater; using sports language, taking a regular team player and turning him into the world champion. This article is about the other extreme of getting the regular athlete out of intensive care: taking a company that will not survive in its current form to a position where it is profitable and sustainable.

Using this definition, most turnarounds do not succeed. The majority of respected surveys put the success rate of turnarounds between 20% and 35%, depending on the definition of underperformance and success. Those with turnaround experience know also that they are usually highly stressful and, if unsuccessful, very poorly rewarded.

We believe that it does not have to be this way. In our experience, there is almost always a decent business in amongst the detritus of a struggling company; which a smart CEO can rejuvenate with some tough decisions and a close eye on the business.

We work with some outstanding turnaround CEOs, whose success rate is close to 100%, and whose approaches share a series of common measures, which we summarise below. This list is not meant to represent a guaranteed recipe for turnaround success, it does not reflect the importance of addressing the specifics of each unique situation, and by definition it is incomplete. It is nevertheless a set of simple actions common to all the successful turnarounds we have witnessed and supported. We describe these measures in the broad order in which we observe them:

1. Establish the facts
2. Understand what went wrong
3. Take control of time
4. Take control of money
5. Make promises you can keep
6. Change the team
7. Simplify

We have written this article from the perspective of the new CEO. This is because we believe that a new CEO, brought in or promoted internally, is pre-requisite for getting a company out of intensive care or creating any step change in company performance.

1. Establish the facts

It is an almost universal practice and requirement for turnaround and recovery experts to establish the short term (three to six months) viability of the business. This is typically a rapid, internal exercise focused on contracts, commitments and cash flows. The exercise is absolutely necessary, but sufficiently well-understood and common that we will not cover it further.

Less common, but equally vital is ascertaining the one-year viability and two-year potential of the business.

This exercise is not a luxury: successful turnarounds almost always require liquidity from either debt or equity; and these sources will need to be reassured that there exists a viable business in the mid term, and that they are not throwing good money after bad.

The work requires an investigation of commercial reality, looking both inside and outside the business.

Externally, it requires interviews at a micro level to understand as clearly as possible customers’ budgets and spending intentions, and research at a macro level to garner the full facts of relevant market trends and competitive developments.

Internally, it requires a robust analysis and understanding of sources of profit and loss by either product, customer or market.

The entire exercise can take as little as two to three weeks for an experienced team, can be performed with minimal disruption to the business and if done well forms the basis of evidence for the recovery strategy. Armed with genuinely solid and accurate information about the external and internal business reality, the recovery strategy is rarely complex and generally obvious.

It is rare that we look beyond two years in distressed or turnaround situations. The time to look at outer years is when the fires are mostly out.

In our next post, we will look at the next three elements of the most successful turnarounds we have experienced: working out what went wrong, taking control of time, and taking control of money.

Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.