DIRECTIONS - Architecture for revenue growth

May 2014

NOTE FROM THE DIRECTOR

Richard (Dick) Van BelzenFor several years it’s been recommended that I add yoga to my exercise routine. I’ve fought this advice off, making a lot of excuses for not doing it. But over the past two months, I finally tried it. And wow, to my surprise it really has helped me gain more flexibility as well as other benefits. Why did I reject something so good for me? Something that isn’t impossible to do and complements other forms of exercise? Well, my mental framework regarding physical activity was stuck in the rut of just doing what I’d done for years. I hadn’t considered the need to add anything or make changes. It took a new circumstance in my life to drive me in a new direction.  And now, I wish I hadn’t resisted the change for so many years.

So, why am I sharing my yoga experience in this edition of Directions? In business, it is often our tendency to stay the course and repeat many of the same approaches year in and year out. So whether advice comes from someone in our network, industry, a friend, or a business consultant, it doesn’t hurt to listen to new ideas and test the good ones out.

Since 2009, most businesses have been reluctant to drive growth in a concerted manner. Why? My contention is that with the economy growing ever so slightly, we’re still behaving in a heads-down bunker mentality. Our leaders have become very cautious about taking on changes, other than those related to cost cutting. Now I’m not recommending making changes without considering the risk to your company. But, this is a more fertile time to gain market share and profits. So let’s take on actions that can help your company grow 3-5% ahead of your competitor’s aggregate average CAGAR. (This is often the best way to compare ourselves to others in our market space and can clearly demonstrate the value captured in the market.)

Sincerely,
Signature
Richard (Dick) Van Belzen
Managing Director

Northpoint Advisors, LLC
1173 Pittsford-Victor Road, Suite 250
Pittsford, NY 14534
Phone: 585.233.6707
Email: dvanbelzen@northpointadvisors.com

CURRENT EVENTS

Zuckerberg and Other Geniuses Can Be Duped
By Jonathan Weil

As bubble antiheroes go, they don't get much better than Snapchat Inc. The company seemed to have everything: a must-have technology, legions of youngsters hooked on its messaging service, plenty of buyout feelers. And then, in an instant, the world received undeniable confirmation that it had been duped.

The photographs and videos that the company said would quickly disappear forever after you sent them from your smartphone? You should assume they didn't, especially if you were naked in them. Nothing goes away on the Internet. Everybody knew that already. It was too good to be true. But sometimes people just want to believe, and they get carried away.

Last week, the Federal Trade Commission reached a settlement with Snapchat and made clear that the company's promises of vanishing messages were false. Snapchat, run by a couple of 20-somethings in Southern California, never had much of a business when it came to revenue and other ho-hum things. Turns out, it didn't have much of a product, either. Its central premise was a crock.

Every market craze has its symbols and legends. The Internet bubble that peaked in 2000 gave us the Pets.com sock puppet. Enron Corp. once set up a fake trading room, with real people pretending they were doing trades, to impress a group of Wall Street analysts. Snapchat isn't a public company, but at one time it had at least one well-known suitor that is.

Last year, Snapchat rebuffed a $3 billion offer from Facebook Inc. And from the outside looking in, it sure looks like Facebook got lucky on that one, proving once again that sometimes a company's best deals are the ones it doesn't do. (On the other hand, how would you like to be the guy who wrote this headline: "Snapchat's 23-year-old CEO was smart to turn down a $3 billion offer"?)

Then, in February, when valuations for upstart technology companies were still in full froth, Facebook agreed to buy the text-messaging service WhatsApp Inc. for $19 billion, including $4 billion in cash and the rest in stock. WhatsApp says it has 500 million users, but its revenue is minimal.

Many sober-minded people wondered how WhatsApp could possibly be worth that much. And the consensus that quickly emerged was that Facebook Chief Executive Officer Mark Zuckerberg was probably entitled to deference. He built Facebook from nothing. He has voting control of the company anyway, so he will do what he wants.

But he is human. If Zuckerberg could be deluded into thinking that Snapchat was worth $3 billion, when its product didn't even do what the company said, it shows he is capable of making mistakes just like the rest of us. Maybe investors shouldn't be so unquestioning the next time Facebook offers billions of dollars for a company without much revenue that most people have never heard of before. That wouldn't be such a bad thing.

Reprinted. View the original article on bloombergview.com.

A note from Northpoint: This article is not designed to stop leaders from considering ways to add to the business portfolio and grow. But it does provide some sobering news about the approach we take towards new applications.

INSIGHTS

Corporate Development: A Critical Function Without a Degree
by Rob Helfrich, Northpoint Associate

An organization whose objectives include inorganic growth must often rely upon internal resources that have limited experience pursuing such opportunities. Perhaps it is peculiar that a student can obtain a degree in engineering, marketing or finance, but not corporate development. Especially when considering the potential impact (both negative and positive) acquisitions can have on an organization. To either “home grow” corporate development expertise, or hire talent, can be challenging. The primary reason is that the incumbent often brings a one-dimensional slant on the position, based upon their functional expertise and education. Finance folks will specialize in valuation, marketers on revenue and distribution, and lawyers on the purchase agreements. However, to be effective in corporate development, one needs a holistic approach with working knowledge of all critical functions. Absolutely vital for inorganic growth, and often overlooked, is effective process execution—from initial strategy development through integration. Therefore, the corporate development resource must be well grounded in strategy, in addition to functional knowledge.

Numerous studies have determined that at least half of acquisitions fail to achieve their intended objectives. The common thread of failure often points to strategic framework and process execution. Successful acquisitions are achieved through effective execution of those leading the process. Such a burden usually falls upon the corporate development staff, which is often non-existent or inexperienced.  However, acquisition risks can be minimized if the projects hinge upon the following three perspectives:

  1.  Start with a Great Strategy. It’s quite common for a company to state their inorganic strategy in the form of a goal, such as:  “We will pursue inorganic growth to drive an incremental 8% of annual revenue”.  Problems start when the strategy is not much deeper than a revenue target. Rather than determining which inorganic initiatives may be necessary to achieve a given strategy, incentives may be misaligned which drive the organization to pursue acquisitions at any cost.  Acquisitions are not a strategy. They are a tool to achieve the objectives of a strategy. The most successful acquisitions are a result of proactive execution of a well-conceived strategy. Such a strategy will often consider various execution alternatives to achieve the objectives, whether they are organic (internal) or inorganic (external acquisition).
  2. Never Wait to Integrate. Every acquisition requires integration. There is no such thing as a “stand alone” acquisition. The degree of integration may vary from fully absorbed operations to separate organizations. Every acquisition will require some level of integration, including information systems, financial reporting and human resources. It is absolutely critical to develop an initial integration plan in the early stages of an acquisition. Valuation, and subsequently purchase price, will be overestimated if it doesn’t fully quantify the impact of plant consolidations, severance or retention agreements, enterprise system integration, and resource planning. 
  3. Have a Business Planning Bible. The foundation of a successful inorganic project is the business plan. An effective corporate development resource will utilize the business plan to guide, direct and inform throughout the process. The business plan is a living document that starts with the strategic intent and alternatives. It builds throughout the process to include valuation, deal structure, integration planning, due diligence and risk mitigation. Through capturing the pertinent aspects of the project, the business plan becomes an excellent vehicle for executive review and deal approval. An effective business plan will provide executive management with the relevant information to make a fully informed decision. Acquisitions can be complicated. The business plan becomes the “go-to” document to ensure the objectives will be achieved. Furthermore, the business plan is often utilized in post audits to determine best practices and key learnings.

Inorganic growth can be highly successful, but depends upon the capability and experience of the corporate development function leading the initiative. The most significant challenge for an organization is not pursuing inorganic growth, but determining the appropriate resources to lead the initiative.

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WE MOVED!

We Moved!

As part of our expansion we have moved to a new address. Effective May 1st 2014, our address is:
1173 Pittsford-Victor Road, Suite 250
Pittsford, NY 14534


FOR YOUR CONSIDERATION

Key Advisor Program (KAP)

KAP

The KAP is far more than a coaching program at Northpoint. It sets out to drive primary result areas and ways we can help our client reach their goals. With the KAP, we look to set certain performance markers such as personal total compensation, promotions, number of folks managed, etc. Our KAP clients consistently outperform others within the company. Along the way, we’re learned that most leaders spend too much time managing down vs. working with peers to break down business barriers and managing up.

Blue Ocean Strategy (BOS)

Blue Ocean Strategy

The “strategy canvas” tool in BOS is excellent for comparing your company’s attributes (for a product/service, platform of products, or company itself) vs. the other alternatives in your market. You get a picture of the relation by attribute vs. your competition to determine your value to the customer Try to make this process as quantitative as possible. Once the top 8-15 attributes have been plotted, look at any additional attributes you can create. The process sets in motion the Blue Ocean Process and way you can differentiate and even disrupt.

Lead User Research (LUR) for Innovative Products and Services

LUR

Besides ethnography, LUR is a great way to find customer market-connected ways to gain differentiation. It allows you to gain real-time alignment externally with your customers, and internally with technology and marketing teams for new product breakthroughs. Selecting the right market participants is crucial to gain effectiveness with this process. Lead Users are not to be confused with early adopters. Lead Users are idea and insight-oriented folks who can see beyond current approaches.

THE LAST WORD

The responsibility for top-line growth is overly diffused in companies today. It gets spread between the sales, marketing, strategy and technology/product development functions. Presidents/CEOs/General Managers assume growth is happening during the course of the year. But in reality, this rarely happens unless the leader decides to take an active and direct role in this process. Some firms have developed the role of Chief Growth Officer to provide the leader with a focal point for this important area. What’s your organization doing to drive growth?

garden

NEXT MONTH

Value Chain vs. Value Propositions
We will look at how these areas can be complementary to each other from a tools and differentiation design process.

Northpoint
Revenue Growth Experts
1173 Pittsford-Victor Road, Suite 250, Pittsford, NY 14534
Email: info@northpointadvisors.com | 585.233.6707
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