Acquisitions

Congratulations! You've worked long and hard, invested in the right people, done the right things, and you're ready to make your first strategic acquisition. Now is the time for due diligence.

As part of any acquisition process, there are questions that you need to ask yourself first. If you don't have black and white answers that your management team understands and agrees with - especially your Sales Manager and CFO - the process must stop here. If it doesn't, you are making a potentially fatal mistake. What questions? Glad you asked:

• Why this company?
• Why now?
• Are there other companies that would be a better fit?
• How many people do you need to keep? For how long?
• Do they have some people that are better than yours? Does it make sense to be redundant?
• How much will it cost to let people go? Make sure that you are in chrge of the layoff package - not the other company.
• Can you afford the buyout in one go, or are you financing it? If the acquisition company tanks, can you afford the loss plus the financed acquisition cost?
• Who is going to review their books with a fine-toothed comb?

That last one, in particular, should be tattooed on your forehead. I don't care if you're buying your mom's company; business is business. They are willing to sell out for a reason. It's your job to find out what that reason is. I don't care that they told you that they're retiring; everyobody says that. Why are they retiring now? You need someone who snoops into books for a living to do exactly that, because you can't trust them and you don't know what you're looking for. At a minimum, your snoop should know this by the time they're done:

• Are their sales rising or falling? Why?
• How profitable are they - not just gross, but net?
• Are they over-comping their people?
• Who are their star performers? Can you afford to keep them?
• Have they already made written promises to any employees - or Customers - that you will have to make good on?
• Who are their best and worst Customers?
• Does their Customer list add enough new names to yours to make the acquisition worthwhile? Don't assume - find out by pulling their database and having it deduped and matched against yours.
• How do their processes work? Sit with their teams. Are there some processes that are better than yours that you should adopt? Can you make them more efficient?
• Are you stuck with a building lease that you don't need or want?
• How about vendor agreements? Are you assuming your competitor's headaches?
• How long will it take the company that you acquire to pay off what you paid for them? This should be part of not just your financing agreement, but also your negotiations with the owner(s).
• Who else are they talking to? Because it's not just you. The sooner you know who they're in bed with, the sooner you can put an agreement in place to stop all other negotiations. If they won't agree to that, it's time to walk away from the table.

That last one is a bigger issue: Never be afraid to walk away from the table. Any acquisition is a huge step, and even the biggest players get it wrong on a regular basis (just look at Time-Warner and AOL). Getting it wrong can mean not only missing a key opportunity to grow, but killing your own business in the process.

Follow the Jackrabbit Rule: If anything smells bad, run.

Pay for Value

Here's a crazy idea: Pay everyone in your organization based on what they contribute to your bottom line.

Before you call the fellows with the straitjacket or start gathering torches, slow down for a moment and really think about this. I grant you that it will take a lot of time and thought up front, but there are some important payoffs involved that may work for your business, including having a compensation system that is fair, equitable, and transparent.

When you hire someone, how do you currently determine what to pay them? Do you fall back on the age-old method of looking to see the median wage for that role and experience level, then come up with a range slightly above or below it? Why? How does what 'the average' is have anything to do with that role's value to your company? What if 'the' average is wrong, or comes from companies that are much larger or smaller than yours? Doesn't this seem awfully arbitrary for something as important as someone's paycheck - something that's probably your single greatest business cost?

Maybe you look at what the prospective employee makes in their current position, or average the highest and lowest wages from their last few jobs. Again, what does any of that have to do with your organization, their role within it, and your needs?

Nothing.

Salespeople are easy. How much did they sell? Pay them a percentage of that. Piece workers, too - how many gimcracks have they made today? Where the real work comes in is looking at every other role within your organization the same way.

Do you employ an accountant? How much money do they collect for your organization? How much do they save? Don't you think they'd be incentivized by getting a little something extra based on that?

How about your marketing department? Did their latest campaign increase sales? By how much? Do you think they would work harder or longer if they had skin in that game?

IT, HR, Customer Service... everyone has value based on revenue they create or money they save. Especially if you are just starting out, and can't afford to pay 'the average', you can build loyalty and ownership by paying people for going above and beyond the bare minimum. And I don't mean some kind of hokey award or slap on the back - I mean a culture where such things are measured and comped on a daily basis.

What's wrong with everyone knowing what everyone else makes? If the goals and their incentives are clear, nothing. How can you complain about what you're paid if you have the means and the incentive to do better? You might, but no one else will listen, and you won't last long. Everyone will be too busy raising their own pay.

And if they are doing what needs to be done to justify that pay, imagine how much faster your organization will grow. Do you think your employees will tell their hard-working friends what a great place your organization is? Especially if you give them an incentive to help you find great employees?

"Yes," I hear you say, "but what if they decide to work somewhere else that will just pay them more?" Folks, there is always somewhere else that will pay your employees more; that's how free enterprise works. You have to be able to show the value of your organization and its incentives in a way that makes sense to prospective employees. Do you really want someone who will leave the moment they're offered more money, or do you want employees who believe in bettering their condition by having control over their own value?

Just because you do something the way that you'e always done it doesn't make it right. In a world of constant competition, you have to question everything you do, re-examine it, and not be afraid to face change if it doesn't make sense any more.

3rd Thoughts

When your organization wants to accomplish something, and the group that will address the project, change, or issue meets for the first time, that meeting is likely to be filled with what I call 'First Thoughts'. First thoughts are all about wants and needs, and you frequently hear those words pop up during this discussion. It's all about defining what you or your organization need or want.

Second Thoughts are exactly that - the other folks that are involved ask that all-important question (Why?), then proceed to tell you why the thing that you want or need can't be done, or how much it will cost, or how many man-hours it will steal from other tasks, etc. Second Thoughts are thinking about your thinking, looking for holes in the boat and kicking the tires good and hard before investing man-hours and money.

The author Terry Pratchett - our time's equivalent to Shakespeare - takes this process one step further, to what he calls 'Third Thoughts'. According to Pratchett, "Third Thoughts are thoughts that watch the world and think all by themselves. They're rare, and often troublesome. When a huge rock is about to land on your head, they're the thoughts that think: Is that an igneous rock, such as granite, or is it sandstone?"

Once you've heard all of the 'Why' answers, Third Thoughts are what lead you to re-examine the want or need in light of the organization as a whole, using the perspective of the other meeting attendees as the dental tool that looks for cavities. For this reason, it's always a good idea to involve people from other departments in at least the first meeting, even if their department is not involved in the issue. In fact, folks not involved in the issue are most likely to have Third Thoughts, because they have no vested interest in the outcome.

Pratchett also differentiates between 'Second Sight' (seeing what you expect to see) and what he calls 'First Sight' (seeing what's actually there). As you look at your list of meeting participants, think about who is most likely to have First Sight. If you don't come up with at least one name, you aren't inviting the right people.

Decisions cost time and money. Every mistake doubles both. The way to minimize risk is to put as much or more time into tire-kicking and perspective-sharing as you do into execution. Take time between each meeting to get it all down on paper, pass out the notes, and ask people to add what they've thought of since you met.

In the end, it will take less time and money to measure twice and cut once - especially if you figure out up front whether the cutting should be done with scissors or a chain saw.

Story

What do you know about the history of Apple? That it was founded by 2 nerds in a garage? That they stood up to corporate behemoths like IBM and kicked their butt? That Apple prospered by giving people well-designed, cutting edge products? That their products reflect what people want?

Great story.

What you may or may not have heard is that, before Apple was even formed, Steve Jobs cheated Steve Wozniak out of money. Or that Wozniak was content to hang out with Apple's user groups and refine their existing computers rather than work on the Mac. Or that Jobs didn't bathe. Or that Apple has had just as many failures as successes. Or that they have a long history of treating their Customers like crap.

Because of social media, you don't have control over your message any more. It can be argued that you never did - that basic fact is just more visible now. But because of that, it is vital that you deliver content that resonates, so that your Customers become advocates. Because there's nothing people like better than a good story.

Did your company actually start in a garage? Great! Do you have photos of those days? Put'em on your press page. Got some funny anecdotes? Get those puppies out there. Remember your first big win against a bigger competitor? Tell it. What do you believe in your heart of hearts? Strip out all of the marketing-speak and say it as simply as possible.

Become a storyteller.

A great story is the difference between Apple and IBM. Do you know IBM's story? Of course not - nobody does! (And if you do, you need to get out more. Life awaits.)  But you might know Ben & Jerry's story, or Thomas Edison's, or Alexander Graham Bell's.

Granted, large parts of those stories aren't true, and there are bad sides to every tale, but that's not what people remember - give them the right ingredients, and they will believe. (Disney knows this to its bones; their whole business model is about telling this story over and over again. Only the names and costumes change.) I'm not saying lie - if you do, in this day and age, you will absolutely be found out. I'm saying deliver the ingredients that make your story sticky, so that people want to tell it:

1. Was your founder a maverick? People like underdogs. Even better if you had 2 founders who are/were pals.
2. Did your founder come up with a brilliant and original idea that was just common sense applied to a market need? The trend may be against intellectuals, but common sense sells.
3. Did your company go up against a bigger, more powerful rival and win? We all love a good fight - especially if it's long and involves hard work and sacrifice.
4. Do you employ a lot of people? If you treat your employees well, say so. People like to think of the companies that they like as big, benevolent families. If that's what your organization is, people will love you for it.

The basics don't change, of course - you still have to deliver great and timely service and communicate perfectly - but story builds goodwill, and belief can often buy you the benefit of the doubt (even if your grammar is poor).

Tell your tale. Keep it simple. Keep it concise. Keep it clear.

Humbert

At the top right of my business blog, WorkIzWar, the first thing that you see is a hamster. His name is Humbert. Humbert has a little wheel to run on, a water bottle to drink from, and you can feed him food pellets. In fact, he will follow your mouse around, watching and waiting for you to do so. Right above his head are these words: 'Waste time with Humbert?'

A digital hamster might seem like a frivolous, even juvenile, thing to include on a business blog, but he serves a very important purpose. During the course of our days, we all come across Humberts. Sometimes they are people who like to chat about non-work issues, or work issues that were decided a long time ago. Sometimes they are tasks that are urgent (just like Humbert, they want to be fed), but not important. Often, they are simply busy work that we do to put off tackling difficult or unpleasant tasks.

All of them prevent forward movement - what I like to call momentum. And all of them are career-killers. Some of them are even business-killers.

Do yourself a favor. Get out a piece of paper. Draw a line down the center, so that you have 2 columns. On the left side, write down everything that you do or become engaged in - every conversation, every phone call, email, task... literally everything that you do today. At the end of the day, in the right-hand column, put an 'X' for everything that's a 'Humbert'. It's easy to define: Did the activity or conversation move you forward? No? Then it's a Humbert.

Do this for the rest of your week. Look how many Humberts there are! If you're like most people, at least a third of what you do is no more helpful to you, your career, and or organization than feeding an imaginary hamster! Who has that kind of time to waste?

Humbert does. And he'll always be right there, waiting patiently for you to come back.

(Update: Humbert died of neglect because so many of you took this article and applied it. Good for you! So we've procured a new hamster named Harry to continue to confound and distract you. Good luck.)

Titles

If you remember nothing else about change management, remember this:

Language = Culture

I'm not a fan of what George Carlin used to call 'soft language'. This applies to titles just as much as it does to processes and departments. In fact, wherever I go, I like to sort out my Sales teams into the following groups:

• Hunters - Business Development, Outside Sales, Field Sales, etc. But their job is to hunt, right? Go out there and get us new Customers. Can't do that? You're not a Hunter.
• Farmers - Account Managers, Inside Sales, Sales Associates, etc. Once we've got a Customer, it's a Farmer's job to grow how much spend. The moment that number stops growing, they stop being a Farmer and start being an expense.
• Caregivers - Customer Service, Sales Assistants, Service Coordinators, etc. Their real job is to retain Customers, right? But it's possible to service a Customer and still not care, and that just won't cut it any more. There are dozens of other organizations out there calling 'your' Customers every day, and you'll lose them in a heartbeat if your reps don't care, and make it clear that your organization cares.

One organization that I worked for was fine with the idea of calling the folks in these groups by these names internally, but horrified by the idea of using them in front of Customers. Why? Isn't that what these folks do? Isn't this what we do and should expect from them? What's wrong with Customers being aware of that? Where's the harm in honesty?

Think about this: Every organization that you work for in your career has an org chart. The org chart's purpose, at least in theory, is to show your organization's reporting structure - the chain of command. This is supposed to help make it clear whom you go to for what. But isn't your first 3 to 6 months in any organization as much about learning what that org chart really means as it is about learning the job? What a waste of time!

If the titles of the people in your org chart include mouthfuls like "Vice President in Charge of Customer Advocacy", you're guilty of soft language. Guilty is the right word, too; you should be ashamed of making it so hard for people to figure out that this person is your Head Caregiver!

I know, a lot of you use titles to avoid paying people more money; calling someone 'Executive Director of Competitive Intelligence' certainly makes them feel good, doesn't it? If they were just a 'Competitive Intelligence Coordinator' before, a fancy title like that sure sounds like a promotion, doesn't it? Although the money won't change. It's all about perceived value; squeeze enough titles in there, and you can get away without a comp increase for at least 2 or 3 years, maybe even longer.

Or you can use titles to reward people you really like. They've hit the top of the pay scale for 'Internal Communications Officer', but if you change that to 'Internal Communications Manager', you can pay them an extra 10%. And isn't good management all about cronyism?

Or you can call people what they do, make it clear what their responsibilities are, and motivate them by sharing that information far and wide.

Here are some ideas. Please feel free to share your own:

• Boss
• Bean Counter
• Penny Pincher
• Maker
• Hunter
• Farmer
• Caregiver
• Fixer
• Crier
• Artist
• Whip (oh, we're gonna get comments about this one)

'Awareness'

Hey! How are you? How's your organization doing? Really? Hm. Yeah. Well, you probably won't be interested in this, but I've got a great way to make people more aware of your brand. Lots of people. Oh, you are interested? Okay, great. I mean, are you sure you want to do this? I don't want to push you into something that you're not 100% sure about, because I'm on your side. Okay... if you're sure...

Give me $25,000 and we'll get the ball rolling.

What? Well, brand awareness costs money, and this level of brand awareness isn't cheap. I'm making nothing on this, you know - this is all overhead for the camera guys, the web developers, the talent, plus purchasing the ad spots. I'm only even doing this for you as a favor - normally this would cost twice as much...

What's that? How many sales will you get out of this? Well, that's hard to say, exactly. I mean, this campaign will go out to about 25,000 people, so a buck a person, that's pretty good, isn't it? What? You want to have some kind of way to tell how many of these people come in and buy because of this campaign? Well, you don't want it to be too sales-y, you know. This is brand awareness, we're talking here. If it's too much like a pitch, it will turn people off. Huh? What's the point of awareness if it doesn't generate sales?

Excellent question. The answer is: none.

'Awareness' is used by some ad and PR agencies to pay for vacations to Cabo when winter gets on their nerves. From their perspective, there's no downside: They've gotten your message out to the number of people they said they would, you have no way of proving them wrong, and they've made a tidy sum without having to deliver a single sale, because that's your job. Is it their fault if you have a message that doesn't stand out, or isn't clear, or the people who saw the spots aren't ready to buy yet, or or or?

Yes. That's what you pay them for, isn't it? If they can't deliver new Customers, what good are they?

To avoid setting your money on fire, awareness should always and only be this: The top of your sales funnel. Because of this, making certain that your message is clear, stands out from your competition, and is sent to the right demographic at the right time are all key. Web stats are a great way to measure this, because they are collectible and fairly straightforward. Print, radio and television are disappearing because they have a much harder time proving reach and Return On Investment. And if something can't prove ROI, why are you wasting your money on it?

Once you are confident that your campaign will reach the right audience at the right time and the reach has been verified (by someone other than your agency; Alexa is great for online stats, the Radio Advertising Bureau will help you figure out frequency and schedules for that outlet, and TV information can be found here and here.

So now that you've got the top of your sales funnel defined, what comes next?

• Awareness - Potential Prospects know who you are, what you stand for, and what makes you better than your Competition.
• Consideration - Potential Prospects compare measure you against your competition.
• Preference - Your message has convinced potential Prospects that, if and when they need your product(s) or service(s), you are where they'll go (unless, of course, they see a more convincing competitive message between now and then).
• Purchase Intention - They call, look at your website, or stop by your place of business. From then on, it's up to your Sales staff to record them as a Lead, get them in the door, and close the sale.

Like all sales funnels, every stage contains fewer potential Customers. This is why knowing how many people you're starting with - and verifying that number as many ways as possible - is key. Your agency should be able to provide you with a fairly accurate estimate of the conversion rate for each stage. If they can't, you need someone with more metrics expertise.

The idea that your message should not contain some means to identify whether or not the campaign is what brought a particular Prospect to your door, website, Facebook page, or phone is nonsense. Just because someone came in doesn't mean they did so because of your campaign - unless your agency can prove otherwise, these folks probably would have come in, anyway. Again - you should only ever pay for what you actually get.

The easiest way to do this is via a response tag - a special offer at the tail end of your message that is specifically trackable to a particular medium for a particular campaign. The response tag and offer for each medium should be different. This will help you determine where to spend your money most effectively next time, and where your message either didn't get through or wasn't effective.

Of course, you should be sitting down with your marketing manager, sales manager, and agency rep(s) to review the metrics and adjusting according on a regular basis, and comparing each campaign to the last one, and also to the most effective one. Your results should improve over time. If they don't, it's your agency's job to figure out why, and your marketing manager's job to take corrective action.

(This doesn't mean you can't still beat up your sales manager. We all know they expect it, and what fun would life be if you couldn't complain about sales?)

What Goes Up Can't Come Down

There is a truism about incentives that applies equally to Customers and Employees: What goes up can't come down.

When you consider an incentive program for employees, regardless of whether it's a spiff program for Customer Service, a bonus structure for Salespeople, or a shared pool for people within your organization who find ways to save money, it's always best to start conservatively, with the smallest incentive that you believe actually is still an incentive. If it turns out that the incentive is too low (depending on whether or not your business is seasonal, it can take anywhere from 90 days to a year to figure this out accurately), it's easy to lift it a notch or two down the line.

But what happens if you start too high, and have to trim back?

Even if none of your employees hit the incentive minimum, scaling it back will immediately be seen as a negative - as you 'taking away' something (even if no one ever received it). And it will be grumbled about behind your back for months and months to come. Who needs that kind of grief? Especially grief that you caused for yourself?

There's nothing wrong with incentivizing behavior; there's no doubt that, when done correctly, it works. But the 'when done correctly' part is key. Consider carefully what you are incentivizing, and start slow and small.

The same applies to Customers. The author Terry Pratchett tells a story about a bounty that was placed on rats in his fictional city of Ankh-Morpork. To curb the city's rat population, citizens were given a fixed amount for each rat tail that they brought in. The result? The rat population increased, because the citizens were farming the rats to earn extra money.

If your incentive has a loophole or a flaw, I personally guarantee that one of your Customers will find it. In fact, many of them consider it their job to do so. And you know what? They're right, and shame on you if you missed something, because getting it right the first time is your job.

It's important not to create incentives in a void; don't ever let Marketing do it alone. Run it by every Salesperson and Customer Service rep you have; they are terrific at finding holes and faulty logic. Plus, by having them take part, they will also take ownership. How can that be a bad thing? Marketing, Sales, and Customer Service all talking to each other? Fantastic!

And, again, until you know what response rates are going to be, start slow and small. It's no good ordering 500 free iPads to give away for every new Customer signed if 5,000 show up. They will blog, Twitter, and Facebook your reputation back to the Stone Age, turning a campaign that you planned as a big plus into a potentially lethal minus.

Look. Listen. Learn.

The (Lack of) Persistance of Memory

The human brain is an amazing organ. Despite our current technological expertise, it has yet to be equaled in terms of computing power per ounce, but it does have something in common with the hard drive on your computer:

Every time that you remember something, your brain re-commits it to memory, effectively playing post office with itself and fundamentally changing the memory. This has such a profound effect on your perceptions that it's actually possible to create memories of events that never happened, so vivid that your brain can't tell the difference.

Aside from how disturbing this is when applied to the idea of 'eyewitness testimony' at a trial, this has potentially destructive implications for your business. Even Customer Service and Salespeople that are 'young and sharp' remember things differently than they actually occurred.

How do you combat this? By making it part of your organization's culture to record everything in your CRM or database as soon as it happens (while it's happening, if possible, so that even the wording used is retained). If it was a phone conversation, record those and attach them to Customer accounts (in my call center experience, 95% of Customers remember a phone conversation differently than what actually occurred). If it was an email chain, make certain that those are attached to the Customer account, too.

The essential ingredient here is urgency. If a rep or anyone else who has direct communication with Customers is slow to record those communications, curb this behavior immediately. The longer anyone waits, the more that will become your culture, and the less accurate the information in your database will be. And then why are you spending so much money for it?