3 Reasons for business owners to listen to Rick Nathan

Recently, on BNN The Pitch, Andrew Bell asked a very good question about what private equity judges to be their most important reason to do a deal. Rick Nathan answered. Now Rick runs Kensington, one of Canada's best funds, and he built the CVCA, so we are talking about a deep experience of great partnerships with business owners. Anyone watching the show, deep down in their bones, would also have known the answer.
Quite simply, it is the people.
Early stage owners nod their heads - I'm a good guy, my golf buddies like a beer with me after a game.
Well, that was not Rick means. He judges their business readiness. Rick tends to focus his questions on The Pitch around these three points:

1. What have they accomplished in the past? 
2. What networks do they operate within - is there a top level adviser involved? 
3. How much business acumen is in their team and are they to really grow their business? Have they really analysed their competition and how they can build a niche market and expand from there.

To give Rick's focus on the people a bit of meaning, let me run through a personal example that happened to me after The Pitch went on air. I got a call from an entrepreneur who had a product and wanted help. As I gently probed, he revealed that he had not even drafted one page of information about his concept, did not have any social media accounts where we could connect, was still using hotmail for his email and did not even have a professional signature line in his email where you have a phone number and your name in full.
Why bother phoning then? Why not just chat to your golf buddy? How am I going to take a few minutes to help someone not in my client segment? I enjoy helping but if there is nothing for me to email to someone else, then there is not a starting point.
I also asked if he would go on The Pitch to just even discuss his business idea, but that was a damp squid too.
To all those entrepreneurs, to get Rick Nathan to help you, have a full business plan, a full PowerPoint deck. At least read one book on how to attract money. An easy book that is popular with the BDC and the VCs, a go-to-guide as you develop a business, is Money Magnet. Otherwise, browse the Internet.
At least set up a Twitter account.

Jacoline Loewen is an expert in private equity and you can see her on BNN The Pitch

More companies come off the stock exchanges - thank goodness

Reading about the 2008 crash is interesting as all the signs were visible. There were certainly steps that could have been taken before 2008. 

Getting the financial analysts off the backs of the corporations, for example. 

It was almost as if companies were being managed from the offices of such people, who insisted on major changes with barely any knowledge of what really went on in these massive enterprises, let alone caring about their long-term future. More companies could have come off the stock exchanges, or never have gone on to them in the first place. There were other, more patient and sensible ways to finance enterprises.

Private equity, for example.

The game changer is private equity. My favourite money people act as a mini bank but who deal with flesh and blood people. This private equity actually looks for company owners who treat their customers as worthwhile serving repeatedly for many, many years. The best private equity are owners themselves and tend to take a non control position and let the owners get on with serving their clients.

5 Questions you need to answer if you go on BNN "The Pitch"

This Wednesday, I am on BNN, The Pitch with realSociable and BuyandBrag.

Many entrepreneurs ask me about going on the show and I would encourage it strongly. Think of it as marketing and what an audience to reach for free.

THE PITCH – SHOW DETAILS

BNN asks each potential entrepreneur to create a well-organized, one or two-page handout that includes your business name, your name, position, contact info, summary of your business plan and a brief bio.

We also ask that you answer the following questions:

1. The ask - how much $ do you need and what will it be used for?
2. Who are your competitors and why are you going to be a market leader?
3. What is the overall market potential for your business/product?
4. What is your bench strength (i.e. mgmt)?
5. What is your cost structure / technology advantage?

The 3 Planes of Managing

Basically, managing is about influencing action. 

Managing is about helping organizations and units to get things done, which means action. Sometimes managers manage actions directly. They fight fires. They manage projects. They negotiate contracts. 

One step removed, they manage people. Managers deal with people who take the action, so they motivate them and they build teams and they enhance the culture and train them and do things to get people to take more effective actions.

And two steps removed from that, managers manage information to drive people to take

action—through budgets and objectives and delegating tasks and designing organization

structure and all those sorts of things.

Today I think we have much too much managing through information. Henry Mintzberg calls this "deeming." In other words, people sit in their offices and think they're very clever because they deem that you will increase sales by 10%, or out the door you go. Mintzberg says:

Well, I can do that. My granddaughter could do that; she's four. It doesn't take genius to say: Increase sales or out you go. That's the worst of managing through information.

Why Canadian family owned businesses should check out Private Equity - Monica Gutschi, Dow Jones Newswires

Bringing in a private-equity partner can be an excellent exit strategy for a small-business owner, but it does hold risks.

   "You want to make sure that you're going in with the right private-equity fund," says Jacoline Loewen of corporate finance firm Loewen & Partners. A air-tight contract drawn up by a top-notch lawyer is also key.

   The ability to access private equity is relatively new for Canadian entrepreneurs. A decade ago, private equity wouldn't have looked at a company with less than C$100 million in annual revenue, Loewen said.

   Now, however, the huge flows of money that have gone into private equity are looking for a home, and companies with  C$20 million in yearly revenue can attract a private-equity partner, she says. The benefits can be substantial, especially for business owners who are planning to sell or pass on their businesses in about five years.

   Most private-equity investments in such small and mid-sized businesses are for a five-year term and give the investor a 30% stake, Loewen says. The principals behind private-equity funds are usually entrepreneurs themselves, who have walked the same road as the business owners, she says. They can take that experience to cut costs, implement a benchmarking strategy, and set a timetable for milestones.

   That can greatly boost the value of the business, putting the owner in a much better position when he or she decides to move on.

     Take the example of Hamilton, Ont.-based Bermingham Foundation Solutions, a family business run by the founder's grandson. Loewen matched Bermingham with a private-equity investor that put C$14 million into the company, money the owner then took to build out his international capabilities. The deal also included a cash payout, which was invested in a retirement fund for the owner's spouse. A few years later, Loewen says, Bermingham's enterprise value has grown fivefold, the owner has an established export business, and he has bought out his private-equity partners.

   "It's still a family business," Loewen says, but it is worth substantially more, and the owner continues to have options for his eventual exit: pass the business on to his children, place the business in a trust, sell the business but retain some shares as a portfolio investment.

   The appeal of private equity appears to be growing. A recent survey into Canadian family-owned businesses by PricewaterhouseCoopers found that fewer than half the owners plan to pass the business on to the next generation, a drop from 70% in 2007. Meanwhile, of those who do anticipate a change of ownership, 33% plan to sell to a private-equity investor, up from 14% in 2007. By comparison, 22% plan to sell to a management team, PwC found.

   There are risks in joining up with private equity. The process can be rather frightening for the owners, Loewen acknowledges. That's what makes it important to choose the right partner. "Once they get in they may do the things you don't want them to do," Loewen says. Indeed, she notes, a recent study by global consulting firm McKinsey showsthat business owners' fears about a deal going wrong is well-founded, as only 20% of private-equity funds are actually posting gains. But with a well-written contract that provides the most flexibility to the business owner, if a deal goes sour, "you get a divorce," she says.

    But in a well-structured deal such as the Bermingham case, the influx of funds and corporate expertise marks a turning point for the business.

   Most Canadian family-owned businesses "could do with more measurement," Loewen notes. Once the new investors "know the drivers that make company grow, these tiny little levers turn the ship."

   With private-equity investments, the business owners continue to run the business but obtain the professional advice of an independent board of directors. As well, she says, many owners of family businesses know a great deal about their products, but perhaps not so much about the financial and operating aspects of the business.

   -By Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com

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 Dow Jones Newswires