Angry Birds Attack the Leadership of RIM

RIM is getting whacked for its leadership reshuffle. The market remains unimpressed.
Running even a profitable business is no guarantee that last year's performance will be repeated. Customers need to be convinced again. Retailers need to be encouraged. employees need to be motivated. Alliances need to be maintained.
Margaret Wente writes harshly about the RIM leadership and gives a scathing indictment to the two billionaires. She probably has a point and someone should have been telling these two to focus on their business and check out apps.

Back in 2007, Mike Lazaridis and Jim Balsillie were like gods. Everyone agreed the Research in Motion CEOs were the two smartest guys in Canada, and possibly the entire world. Anyone who was a someone owned a BlackBerry. A BlackBerry meant you were a player. Even Barack Obama had one! But even if you didn’t, you cheered for RIM because finally we could forget the hideous national embarrassment of Nortel and hold our heads up in the world. Thanks to them, our whole country was a player!

When Roman emperors paraded through the streets in triumph, they used to hire a slave to whisper in their ear, “Remember, you are just a man.” Maybe Mike and Jim should’ve tried that.

When Steve Jobs unveiled the first iPhone in 2007, Mike Lazaridis trashed it. He told his employees nobody wanted to have a personal computer on their phone. Back then, RIM commanded nearly half the U.S. smartphone market. Today, it has more like 10 per cent. Not only do people like to have computers on their phones, they also like to waste millions of hours playing Angry Birds. Who knew?

The worse things got, the more arrogant they became. Last spring Mr. Lazaridis walked out of a BBC interview because he didn’t like the question. “You implied that we have a security problem; we don’t have a security problem,” he said. “We’ve just been singled out because we’re so successful around the world. It’s an iconic product, used by business – it’s used by leaders, it’s used by celebrities, it’s used by consumers, it’s used by teenagers – we were just singled out.”

Then there was all that money. Funny things happen to people who get stupendously rich. Instead of dreaming night and day about the next great product, they start to dream about building the most spectacular mansion in the entire country, or buying a National Hockey League team. Mr. Lazaridis’s construction project (a 24,000-square-foot “cottage” on the shores of Lake Huron) has been going on for years. Mr. Balsillie spent three years haggling for the Pittsburgh Penguins, the Nashville Predators and the Phoenix Coyotes.

Meanwhile, Mr. Jobs was dreaming up hit products that people would line up overnight to buy. As Toronto money manager Tom Caldwell said, “Once the CEO is building the maxi-yacht or the great mansion or trying to buy hockey teams, he is not paying attention to his business, in my mind.”

Mr. Jobs despised tech billionaires who acquired mansions and fancy toys. “I’m not going to let money ruin my life,” he told his biographer. He had no taste for “that nutso lavish lifestyle that so many people do when they get rich.” The trouble is that people who get rich get fat and soft. They’re not hungry any more.

Mr. Jobs knew that if you stop swimming fast enough, you die. He was a screaming perfectionist who cursed out his staff when they moved too slowly, or when some product detail wasn’t good enough. Meanwhile, last year, when RIM released the PlayBook, which was supposed to compete with Apple’s iPad, it was a miserable flop: It couldn’t do e-mail. It had no Skype, no GPS, no Angry Birds. As a New York Times tech reviewer wrote incredulously, “There’s no app for that.” It wouldn’t even fit into the breast pocket of a jacket.

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Where was RIM's Board of Directors?

RIM leadership may have got arrogant but they also gave a great deal to the Canadian entrepreneur scene. Jim Balsillie was generous enough to give me an interview in 1999 for my book, e-Volution: How to use the Internet to grow your business. He has done his strategy very well - something I see rarely done by Canadian owner/founders.
All this talk we are hearing from the USA about how "private equity destroys jobs" and "capitalism is evil" completely by passes the fact that humans create businesses and destroy businesses. The best businesses rarely go beyond a founder's life cycle and both founders of RIM are past their peak entrepreneurial risk taking days.
There is your problem.
Where were the Board Director experts to point out this fact? As I have hammered in my blog, advisers and board directors appointed by the owners will never say what needs to be said. Have them appointed by an outsider and you will have a very different result.

Lessons from the recession for business owners

When I worked at a strategist for a bank and wrote the speeches for the CEO, who was also the founder, he would confuse me with his insistence on always bringing up complacency. As a young MBA with my career before me, I could not see wasting time on such a mundane topic which seemed more of a downer and something your mother would say. 

As I look back, I realize he was wise with his observation that success brings complacency and complacency brings failure.

Lesson from the recession: Run your company during boom times as if times were lean.

We have heard many leaders bemoaning that their companies would be far more successful if they had run them during the boom period as they are running them now. Without question, success can bring complacency. However, the best leaders we know resist this tendency. Their companies’ cultures foster continuous improvement and cost-reduction regardless of great performance.

Similarly, the advice we often give entrepreneurial and family business owners is, “Run your company as if you are preparing to sell it in three years.” This means eliminating under performing employees (which can be difficult, even when done with great care and consideration, but is critical), and building cost-cutting and improvement initiatives. These efforts will grow EBITDA and result in a more successful, resilient and valuable company.

As for my old boss, his bank is still in business, having survived the derivatives madness, and has achieved its vision to be global. 

Complacency is indeed the key word to put in all your leadership speeches.

Barry McKenna on how Canada can be competitive

How to get the Canadian economy to grow is on everyone's priority list. There were 65 recommendations made by Red Wilson's panel set up to make recommendations.
My time in private equity has shown me that "Growth and innovation" is an attitude.
Canadian business owners have managed to tuck in behind the American economy and grab a good enough market share, but not build its own global winning companies.
Here is an excellent article by Barry McKenna in the Globe and Mail discussing the problem on business innovation further:

Putting Canada on a more competitive footing will likely mean diversifying trade links beyond the U.S., converting corporate profits into world-beating innovation and pursuing big infrastructure projects. It also means welcoming more foreign investment from places such as China and the Middle East and deregulating a host of stodgy pre-Internet industries, such as telecommunications, cable and transportation.Such a campaign has a long way to go – as is highlighted by the comments of foreign investors like Naguib Sawiris, the Egyptian telecommunications tycoon. It was his money, controversially, that helped fund the startup of Wind Mobile in this country. In an interview with The Globe and Mail this week, he blamed Ottawa’s telecommunications policy for making it harder for new wireless companies to establish themselves. “Anybody who asks me, I tell him look, we are the stupid investors that poured a billion dollars into Canada here and created 1,000 new jobs, please don’t do this mistake. Don’t come here,” Mr. Sawiris said. He also drew a direct link between the long-standing federal policy of limiting foreign investment and the lack of global presence of Canada’s major telcos.

“If they were that good, why are they just in Canada here? Why don’t we have Rogers in the U.K. or Germany? Why is Vodafone everywhere? Why is France Télécom everywhere? And this national champion Rogers is only in Canada? Because only in Canada it gets pampered and it can kill its competitors.”

A push for reform

In 2008, an expert panel set up by the Harper government to examine Canada’s competitiveness recommended a major shift in Ottawa’s approach to telecom, in favour of opening it up to far more foreign investment. Three and half years later, the chairman of that panel, Red Wilson, looks back on his effort with a mixture of pride and regret. Pride because his panel’s findings are just as relevant today as they were then. But it’s tinged with disappointment because most of the 65 recommendations, including the one on foreign ownership of telecom companies, remain on the shelf even as the country’s innovation and productivity performance sputters.

Can I sell my company even if it is not profitable?

The question of the week is one asked by many of my clients:


Can I sell my company even if I have not made any profit the last couple of years?

The answer I give is a whole-hearted, "Yes!" 

You can always sell your company. The correct question though is: Will you receive a value sufficient to satisfy your personal objectives? 

Many of my clients have become used to withdrawing capital from the company and once profits erode, become nervous and think that they need to sell before profits decline further. This is where valuation and sale of your business by a professional EMD or corporate finance expert will make a significant difference. 

Although your historical EBITDA certainly is a factor, the value will depend largely on what EBITDA you can prove for the future. If, for example, you have landed large new contracts, you likely will be able to get value for most of the EBITDA that those contracts will generate over the years to come. 

I suppose the tougher question here is: Why are you selling your company now? If you have no choice, then you should prepare the best you can, potentially hire a broker  or Exempt Market Dealer to help you tell the story, and get the best value possible. 

If you don’t have to sell now and you think the future looks better, you likely will get more value if you wait. Taking on 30% sale to Private Equity would be your best option. They will fill up the tank again, revitalize your strategy and get you looking at what options you have - most often, hiring a CEO and encouraging you to do the work you love to do.

Jacoline Loewen is a Director of Loewen & Partners Inc., an Exempt Market Dealer, specializing in finance for owner operators and family businesses, specifically acquisitions, restructurings, sales, successions, strategy and private equity financing.

Jacoline began her career with Granduc Mines, Northern BC, and then Deloitte in their strategy unit. She developed a strategic planning model and published it in a book called "The Power of Strategy”. She also wrote "Business e-Volution" and “Money Magnet: How to Attract Investors to Your Business” (Wiley), which has been used by Ivey as a text book.

She is a Director on the Board of the Exempt Market Dealers Association (EMDA) responsible for brand and communications. She is on the advisory board of DCL International, Bilingo China and Flint Business Acceleration. She has been a Director for other Boards such as the Strategic Leadership Forum.

She is a regular panellist on BNN: The Pitch, a contributor to the Globe & Mail and National Post, serves as a judge for the UBC and the Richard Ivey School of Business’ Business Plan Competitions and is a guest lecturer at Ivey and Rotman Universities. Jacoline holds an arts degree in Industrial Relations from McGill University and a MBA from the University of the Witwatersrand.  Her MBA thesis was selected by Cambridge University and published by Cambridge’s Engineering faculty. 

Jacoline Loewen on 3 Rules for every Start Up - BNN The Pitch

Putting more into production of the The Pitch by pre-taping, rather than doing it live. We start today.
Up first to pitch are two start-ups that look promising for the financial returns and interesting, compelling products that they are already selling.
I will tell you their names later this week and give you a heads up on how they did with the private equity panel on BNN.
I thought I would add the 3 rules I liked the most from a great list by Mark Evens in The Globe and Mail on 10 rules for start ups. Here's Mark:

8. Understand that raising money is time-consuming and disruptive

From the outside looking in, raising venture capital looks sexy and exciting. The reality is that it involves a lot of grunt work, energy, numerous meetings and lots of patience to convince investors to commit. It also takes entrepreneurs away from running the business.

9. Recognize that once you raise money, it and your investors need to be managed

When investors decide to give startups money, they expect progress, traction and regular updates on what is happening. It’s not like they hand over the cash and then go away while the entrepreneur gets to do what he or she wants. Instead, startups need to continually manage their investors, which takes time and effort.

10. Enjoy the work because startups can be a 7/24 activity

Startups are not a 9-to-5 job that lets you go home at the end of the day without any work distractions. Startups are beasts that can be consuming so you had better enjoy the journey.

Jacoline Loewen on Professional services treating companies as an annuity

Most business owners and senior leaders build a relationship of trust with their service providers. The bulk of these relationships, generally, are the outsourced activities of accounting and legal work performed by accounting experts and lawyers.
When Private Equity partners are making an investment, it is my experience that they appreciate and respect those relationships.
One warning to family business owners, particularly those approaching the age of 50 who need to begin succession plans, your accountant and lawyer may not want to start any conversations that may change their circumstances. It pays for them to keep the Status Quo, the river flowing along the same route, so to speak, even if it is at a detrimental cost to the owner.
From years of observing the familiar level of complacency with lawyers and accounting firms, I often ask the same question, "Are you out for what's in it for you or for what's in it for the business owner?" As Adam Smith will attest, humans do go for the "What's in it for me?"
Getting an owner to change their goals for growth, for example, is just too risky. Getting a family business owner to contemplate a CEO other than themselves is just plain suicide.
As a business owner, understand this human fear of upsetting the person who is paying the bills and who could fire the lawyer or accountant from a nice, regular source of income.
Watch for complacency in your law and accounting service providers.
Often, the mere introduction of a competitive scenario from the introduction of Private Equity partners on the board, will yield better service at the same or even reduced cost. This is most often true with auditors, senior lenders and insurance and benefit providers.
Providing services should not be an evergreen annuity for the service provider. Yet it is too often the case.

Is Private Equity supported by pension funds?

Private equity is getting a schellacking thanks to Mitt Romney's time as the leader of Bain Capital.
As someone who has been in the PE industry and written a book about Canadian Private Equity specifically, the American Private Equity scene sounds like a Shark Tank, as compared to the Canadians who tend to be more like the dolphin species.I have met and worked with American funds and there is a wide range to their investment styles - some just want to give expensive money, some want to be on the board and push the strategy and a few will actually do some operational work. 
It is ingenuous to say the least, to tar the whole group with one brush. Worse still, it is destructive to the whole economy to make a Salem witch trial for private equity managers like Mitt. 
Private companies make up a large part of the economy in a majority of countries and the lion's share tend to be family owned. This type of ownership can  too often result in stagnating companies or declining businesses on average. Private equity partnerships helps these companies to grow, morph and find new, invigorating life. Without private equity shaking up the neighbourhood, it is too easy for all the competitors to be complacent. In Canada, McGregor Socks found new life with its private equity partners. Yes, they moved the manufacturing to China which upset the union. The business was going under and the two brothers were not working well together. McGregor saved some of the Canadian jobs and expanded a whole new range of design jobs in Canada. As for the union, well I studied Industrial Relations while at university and worked in a mining union which showed me the selfish nature of unionism. So let's put it this way. Unions have chased jobs away far more than private equity - if you want to talk about who is shellacking the jobs.
One of the themes emerging is that PE is "supported" by pension fund money. It is true that the largest sources of capital looking for a good return in Canada is the Ontario Teachers' Pension Fund and the Hospital Workers  Fund, both union funds. 

"With $107.5 billion in net assets, the Ontario Teachers' Pension Plan is the largest single-profession fund in the world."  OTPP has also been behind the largest PE deals in the world, including the BCE failed deal.

OTPP is busy investing in China now, taking Canadian earnings and allowing Chinese companies and their workers to get access to capital.  Do the union membership know their money is going to Chinese businesses? They would also be interested to know how much gets invested in the USA and how little in Canada.

Remember, those who can access capital get to grow their business. Investing Ontario teachers' money into Ontario businesses is actually the fairest investment. But when did "fair" be the pension's investment criteria? Would the teachers want their retirement money invested in OK companies or growth companies if it impacts on the amount they get for their retirement? You be the judge of that.

Private equity firms are glorified loan sharks

Private-equity firms are basically glorified loan sharks that take a hands-on management role in restructuring companies in return for a big cut. Sometimes it works. Sometimes it doesn’t. The biggest profits come from arriving on the scene when a target is weakest, and turning it around, but taxpayers can wind up paying for that in other ways, too.

Scathing condemnation, sweeping generalizations and hugely damaging misinformation for business owners. This article has it all. 
Read the full article here.

Advice to Mitt Romney on Private Equity

Private equity blackballing by the US media continues with Mitt Romney not exactly helping the cause. He recently commented that the 1% create wealth, yes, Mitt, with a little help from their friends - those politicians in Washington. It is the system that allows for this rigging of the system. Even a good, ethical Jimmie Stewart from It's a Wonderful Life would be altered to take advantage because of the system.
Crony capitalism is disgusting and it is destroying America.
The 99% have a right to speak up. They might not be articulate, but they are upset about something with the system. They have figured out that the system is rigged.
Quite right.
The middle class has plummeted. Life is not as good. When a New York mayor goes into office with $1B and then changes the law to stay past the usual 2 terms, and ends up with is it 50 times more cash, something is seriously wrong. When every New York cab driver asked me about how to move to Canada because they are sick of the corrupt mayor and the crony capitalism, when the Starbucks Manager near my hotel asks me how to become a Canadian, Washington, you have a problem.
Mitt, you need to see this pus-like boil of a problem because if you do not, you will not get to be President.
I am glad to be in Canada. My business club invited Stephen Harper to speak and he said he did not want to address Bay Street as it could be seen that he is being influenced by business. I was quite taken aback because we have Bob Rae and Michael Ignatieff grace our list of past speakers. Why not Harper? At the time that they spoke, Bob and Michael were running for office, not elected yet, so that makes sense. I have come to realize that Harper was right with his decision, and although Canada is slower than America, you get the sense that Canada is a fair place to do business.
So here is my advice to Mitt Romney:

Mitt, your Wall Street buddies might think you will roll things back to 2006 but don't do it. Clean up the US political Crony Capitalism system.