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Archive for September, 2012

Last week I posted about my being both awed and a bit unsettled by a conference at The Capital Roundtable.  It is hard to argue the brilliance of top private equity operatives.  As far as I can tell, the PE vocation is populated by nothing but Mensa savants.  Mostly what these analytic glitteratti do is quite beyond my ken, as I reported last week.

Yet there is one area these portfolio managers find perplexing, as far as I can glean it.  That area is sales.

Sales, like entrepreneurship itself, is more of an art than a science.  And private equity portfolio managers don’t believe in art.  They believe in what they can measure.  They believe in quantification.  They believe in neatly tied, tightly controlled bundles of profit.  In most things they are great at unlocking value and in most things they exercise a salubrious effect on companies and the market.  But I understand why sales solutions can elude PE portfolio managers, much more than they do entrepreneurial company builders.

Good salesmen, again like good entrepreneurs, are creatures of individuality, subtlety and nuance.  And they are not molded solely by filthy lucre.  Good ones are intuitive, freedom-loving cowboys.  While a good salesman may be able to “sell ice to an Eskimo,”  but that does not mean he is so cynical he wants to do that or that it makes him happy, fulfilled, or incentivized to do that.

Contrary to popular myth, sales people are not amoral scoundrels and money grubbing rogues like “Blake” (portrayed by Alec Baldwin) in Glengarry Glen Ross or “Roy Walter” (portrayed by Nicholas Cage) in Matchstick Men.  They like being part of something that gives their life and their world meaning.

PE afficionados should note the recent work of happiness researchers Elizabeth Dunn and Michael Norton.  Dunn and Norton (NY Times, Sunday Review, July 8, 2012) have found that additional income buys us little additional happiness once we reach a comfortable living standard.  They quote a Princeton study using Gallup polling data from almost a half million American households that shows that money creates little beneficial effect after reaching the $75,000 mark.

So more monetary or other quantitative incentive is not necessarily the carrot that should be dangled before top salesmen to maintain and increase effort.  What needs to be maintained and augmented when PE managers take over an entrepreneurial venture is a sense of mission and purpose.  That is not an easy thing to sell to a sales staff that knows a portfolio company is probably being groomed for a quick sale.  The ultimate failure of “Chainsaw Al” Dunlop’s abrasive, cynical, short-term management style is surely a cautionary tale for all PE portfolio managers.

Sales has to be approached on the basis of long-term sustainability and corporate mission, not excessive near-term monetary motivation.

Pericles Mazarakis of Thomas H. Lee Parters, who was the Chairman of The Capital Roundtable seminar I attended last week, acknowledged a need for more non-monetary thinking around sales incentivization with a story of an incident he observed at Remington a number of years ago (I am reporting this from memory):  A certain sales director at Remington kept his staff’s efficiency and enthusiasm high, not by monetary carrots or demanding quotas, but by the simple expedient of placing a xeroxed sheet on the desks of salesmen who did well, saying, “Great job!  You are killing it!”  The consulting firm looking at the company found that these cheap xerox sheets were being framed by these salesmen and meant more than any quantitative reward.

There has to be a way to emphasize more the salesman’s need for meaning if PE companies want to maintain and expand sales force efficacy.  That means framing a non-quantitative sense of pride, belonging, and ownership, even with the shortened profitability timeline of PE managers. The Gordian Knot of sales maximization is really not amenable to the rough hewn solution of Alexander the Great. Even from the near term profitability perspective of the PE investor, there really is no quantitative silver bullet because the sales conundrum is the most immutably human of business problems.

PE portfolio managers, or anyone else seeking the silver bullet for successful, engaged sales solutions, long or short-term, might begin with Albert Schweitzer’s words about success.  He said, “Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful.”  Thank you, Albert.

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On September 13, I attended The Capital Roundtable, the redoubtable private equity community headed by the august and avuncular Burt Alimansky.  I was thoroughly enlivened and even entranced by the proceedings, but I also found the all-day event quite unsettling.

It certainly was an interesting experience to spend a day as the lone entrepreneur swimming in a sea of top-drawer of PE and VC portfolio managers discussing value maximization of their portfolio companies.  (I don’t think I’ve ever seen so many ex-McKinsey partners at one event.)  It was fascinating to look at the pre and post takeover outlook on entrepreneurial companies as seen through the gimlet eyes of these elite weavers of profitability.

I have always known abstractly that the private equity folk are fundamentally financial investors; that, unlike corporations, which might buy all or a section of a company to use strategically, these guys are solely interested in a limited timeline profitability turnover.  Passionate entrepreneurs they are not.  Certainly, warm-hearted sentimentalists they are not.  They are builders of profits, not builders  of companies.

This particular conference specifically focused on best operational practices for driving growth and profitability.  There is unquestionably a lot to be gleaned by an entrepreneur from studying the analytic process of the PE portfolio manager.  It helped my mindset to spend a day thinking in a radically different paradigm.

So what does successful private equity thinking offer us entrepreneurs?

A presentation by Jim Corey, Managing Partner at Blue Ridge Partners, focused on three broad areas private equity thinking can offer to the entrepreneur.
  1. There is significant untapped revenue in the “core” of most businesses.  I think a lot of us don’t see it and don’t measure it because we are too close to and passionate about our babies–our lovingly nurtured business communities.  It’s too personal for us.
  2. Dramatic changes in profitability can come from surprisingly simple changes.  I won’t go into Mr. Corey’s many examples, but, for me, it became clear that I am usually too distracted with everyday crises to focus on how the simplest solutions can solve the seemingly insoluble.
  3. Many companies simply lack the facts required to generate new insights.
Mr. Corey lists several questions entrepreneurial companies often can’t answer.
  1. Where do we make money?  Lose money?
  2. Why do we win and why do we lose?  Where is our sweet spot?
  3. What percentage of revenue comes from new customers?
  4. What is our share of  “eligible spend” from our current customers?
  5. Are pricing inefficiencies leaving margin on the table (too low) or causing us to lose volume (too high)?
  6. Is our product innovation and commercialization engine better or worse than competitors?
  7. Is our sales team better or worse than competitors?
  8. What % of time do sales people spend facing the market?
  9. Are sales incentives motivating the proper behavior for the sales team?

Effective PE portfolio management can answer these conundrums and leverage profitability accordingly.

(Interestingly, the one area these PE geniuses seemed to be somewhat flummoxed by was sales.  Since that is the outsourced specialty of my firm, Corporate Rain International, it certainly drew my attention.  My theory about this is that good sales development and implementation doesn’t lend itself to the short-term quantitative and monetary incentives PE portfolio managers feel most comfortable with.  More about that in in another post.)

One last thought:  These PE guys are bloody scary.  I have seldom felt a room so full of testosterone-fueled, chest-thumping macho and certainty.  (And that includes the women!) These quantitative Masters of the Universe do not suffer from insecurity or self-doubt.  I hope I am not being too harsh here, but their view of the entrepreneur feels cynical and predatory. They seem cold as a sack full of coins.

In his play Lady Windermere’s Fan, Oscar Wilde could well be describing PE operatives when one of his characters says,  “What is a cynic?  A man who knows the price of everything and the value of nothing.”   Thank you, Oscar.

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I’m feeling very unsexy this week.

My wife is an 8-6 corporate business executive and we are between nannies for three weeks.  Guess who is in charge of buying back-to-school supplies, making my daughter’s breakfast, allaying childish fears about entering sixth grade, taking and picking up my daughter at school and piano, reading the avalanche of school missives and instructions, going to Costco, and doing the laundry.  That would be me.  Mr. Mom.

Oh, yes.  And I’m also trying to keep my company afloat.  The winds of business never cease howling.

Because of the flexibility of my agenda as the owner of my company, I can cover family needs at times like this, though at a cost of underperforming my leadership, managerial, and rainmaking roles.  One advantage of the entrepreneurial lifestyle is flexibility to fill in as crisis care giver.  I am, after all, the boss.  (Of course, if I “fill in” too much I go out of business.)

So I’ve been taking on the household and child rearing.  I’m fumfering through.  But for me, there are subtle losses that occur in times of overwhelming workloads.  These losses are in intimacy, marriage nourishment, and sex.

I have written before about my feeling that entrepreneurs generally make shitty spouses.  (Scroll back to my blog of May 21–“Marriage, Divorce, and Entrepreneurship“)  It is very hard to have it all.  Most of us are bifurcated with love for our mate and passion for our company.  For me, entrepreneurial passion comes from the same emotional space as romantic and sexual passion.  When you throw domestic engineering duties on top of everything else, who stands a chance for a balanced life?  Something’s gotta give.

While there has been a great deal of discussion about female executive issues of life and work balance, note Anne Marie Slaughter‘s celebrated Atlantic piece (’t-have-it-all/309020/), very little has been written about the male side of the equation.  I feel life balance issues are increasingly becoming transgender, as more women become entrepreneurs and high-level executives.  It’s really the rewards of intimacy, relationship development, tenderness, and sensuality that may get lost when priorities force choices.

Here’s a story I picked up off a blog in the Harvard Business Review last week. (Sept. 5–Herminia Ibarra) It tells of a top-level female executive serving on a diversity committee–a female executive both me and my wife can relate to.  Asked to comment on her experience with diversity, this executive said to her colleagues:  “Let me tell you what diversity means to me.  My husband told me ‘There will be sex in this house at least once a week, whether you are here or not.'”

If only it were simple.  A great reward, incalculably important to most of us entrepreneurs, is freedom.  Yet nothing is without a price.  My wife often feels she pays that price.  I certainly don’t have the solution to this conundrum, yet I am certainly feeling it acutely, keeping too many balls in the air this week.  (Our new nanny arrives from Brazil next week.  Thank God!)

Mae West has advice that might apply to women considering partnering with an entrepreneur.  She says, “Don’t marry a man to reform him—that’s what reform schools are for.” And Andre Maurois, said, “A successful marriage is an edifice that must be rebuilt every day.”

Thanks, Mae.  Thanks, Andre.

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One of my entrepreneurial friends recently sent his son, a recent graduate of Columbia Business School, to me for advice about beginning his life in business.  It got me thinking about the real reason to be a businessman.  Again.

This particular business parvenu will have no trouble garnering multiple offers.  He is obviously very bright, confident, and of an elite educational lineage.  He certainly will not need my advice or help to set foot onto a successful life path.  I told him two things about my experience.  One, your life will be hugely affected by luck.  Be ready for it.  And, two, know who you are:  What are your fundamental values?  What makes you happy?  What do you want your life to mean?

Increasingly I find these questions are not the questions being asked by a new generation of business leadership.  There is a lack of moral vocabulary.

David Brooks, op-ed columnist for the NY Times, recently described an online discussion he participated in at Stanford (NY Times, May 24, 2012) about why so many elite students go into finance and business consulting.  Brooks was somewhat dismayed that these students had a “blinkered” view of their options.  “There’s crass but affluent investment banking.  There’s the poor but noble nonprofit world.  And then there is the world of high-tech start-ups, which magically provides money and coolness simultaneously.”  But Brooks notes that these elite people are uncomfortable with moral evaluation of business process or service.  (And this elite cadre of young leaders looked askance, if at all, on things like social work, nursing, ministry, etc.)  They simply didn’t know how to look for soulfulness in business.

One thing that often bothers me about the “good works” of businessmen is that it can be infused with ego, either in the form of self-aggrandizement or faux humility.  Likewise, with ethics.  It seems to me that ethics, much like entrepreneurship itself, is not something that can be picked up with classes in business school.  I find much of what goes under the rubric of eleemosynary acts is closer to cause marketing or personal PR presentation than than soulful generosity.  As Brooks puts it “…community service has become a patch for morality.”

What is lacking is a sense of business vocation itself as a spiritual journey.  (I am reminded of Peter Drucker’s exhortation to make your life your endgame.)

Entrepreneurs have a unique opportunity to explore, develop and exemplify their character and morality in the quotidian.   And the best evincement of this is simply to be good and caring and honest in your daily business life, with yourself, your clients, and your employees.

Brooks concludes his op-ed with the following:

        “I saw young people with deep moral yearnings.  But they tended to convert moral questions into resource allocation questions; questions about how to be into questions about what to do.  It’s worth noting that you can devote your life to community service and be a total schmuck.  You can spend your life on Wall Street and be a hero.  Understanding heroism and schmuckdom requires fewer Excel spreadsheets, more Dostoyevsky and the Book of Job.”

Thank you, David Brooks.

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