My CEO Life

The team at Classified Ad Ventures is working with companies around the world to help them refine their business models and to accelerate their growth.   One observation we have is that management and owners are often overly enthusiastic about of their revenue growth, expense requirements and ultimately market cap.  Why is this happening and what should these operators think about it?
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You just have to turn on the TV for one minute in any country to hear just how bad the economic situation is.  The reports flood in from around the world about how business is contracting, unemployment is rising, consumers are no longer spending and companies are focusing on cost containment rather than revenue growth.  However, it is in times like this, that companies should be looking to acquire new businesses – they are now trading at reasonable levels and many of them are looking to be acquired.  So why don’t managers take this contrarian approach?
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A reader in India has sent me a question all around business valuation and more specifically he asked, how do you value a Web 2.0 business. 

At the REA Group we purchased 15 different businesses and during that time used a number of different valuation approaches.  These approaches included market values (ie comparative sales), discounted cash flow, revenue multiples, net earnings and EBITDA multiples, and value per customer. 

The objective in the valuation of a business is to work out the value in the hands of the current owners and then the value in the hands of the acquirer.  This give you the overall range and the negotiation objective is to agree a price as close as possible to the value in the sellers hands.  (Otherwise you are giving away too much value to the seller)

However, valuing a web 2.0 business is a different kettle of fish.

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As i have previously mentioned, we have bought a couple of businesses.  Both of these acquisitions will merge with parts of the existing business.

One of the businesses has a new product set that is complementary to the existing product set.  The way we are approaching this merger is to rapidly focus on getting the go to market approach right.

What is a go to market approach – it is the product / pricing / sales and marketing approach to get the product to the market in the most cost effective manner.

We purchased the business on Monday and by Friday the sales team will be training on the integrated product set … how are we doing it?

1. We have flown the leadership team for that business unit into head office for 3 days of solid work
2. They are charged with merging the product sets (from a sales perspective), revising pricing, and getting materials ready for the sales people who fly in from around the country on Friday for a day of briefing.
3. On Monday, the new product set is being sold by the sales team and our industry marketing team kicks in with special offers to target customers

It may not be pretty but it will work.  We would rather get out there and try it than think for ever and a day about what may be.

I will let you know how we go.

We have recently purchased 2 smaller businesses.   Many people spend lots of time on the deal doing and not enough thinking about how to integrate the businesses.

Integration is the make or break of any deal.  On paper it may look great but if the people dont want to play ball, then often the value goes up in smoke.  Culture has a lot to do with it and the merging of the cultures is critical.

The way we are approaching the integration of the two companies is simple and one that i would recommend to all people.

1. We have appointed a senior person (direct report to the Chief Executive Officer) as a project sponsor – their job is to make sure that the integration occurs in the agreed time
2. We have appointed a dedicated integration manager who has overall authority to make the integration work – this is a full time role
3. We have clearly identified the org structure / reporting lines / seating etc … to ensure that people rapidly have a new home
4. We have set an agressive 4 – 6 week deadline to get the businesses integrated

In the integration process, we are primarily focusing on the sales / product / pricing / go to market processes first – this will ensure that there is the least amount of confusion in the market.

Well there are some thoughts today … perhaps how we negotiated the deals tomorrow

Have you ever had on of those days when things go right and more importantly, something great just pops up and you cant say no.

Well i had one of those days last week.  I was working away and received an email from someone in another country asking to help us enter that country.  Normally i wouldn’t give it too much attention as we get these all the time however the person happened to be from my country and we nearby during the week.  I met with them and it was a perfect match – they know the market, have the contacts but not the expertise or funding and we have the rest.

90 min later we had an in principle agreement to seriously look at working together to enter the market.

So what makes a simple decision for a CEO in whether to seriously work with someone else?

For me it comes down to passion / entrepreneurship / clarity of thought and market knowledge.

The person i interviewed definitely has passion.  They approached us and could clearly demonstrate how we can enter the market and how they can make it happen for us (therefore less thinking for me).  The person has a clear history of entrepreneurship and they currently work for a future potential customer so they can deliver some of the sales that we need to get started.

So … the next time a penny falls from heaven — GRAB IT FAST with both hands as it doesn’t happen too often.