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Tip of the Spear Ventures

Venture Capital | Business Transformation Consulting

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How to Build Capability to Power Business Transformation | Part 3

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The Point: A program that encourages productive behavior and skills in employees can be a powerful tool for boosting the organization’s productivity. It is also an important element of any successful business transformation. So why do so many leaders get it wrong? In this series, we’re going to explore building employee capabilities, or skills for business transformation… Enjoy!

Business Transformation_Zeroing Agency

Capabilities and Transformation

There are typically four steps to building capability that support a successful business transformation. First, employees are taught new skills. Second, teams apply those skills to their abilities and behavior change. Third, the organization then begins to improve its effectiveness. Fourth and finally, the company achieves its financial goals and other goals/objectives.

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Business Transformation Common Sense Isn’t So Common

This four-step process would make business transformation seem like common sense when it comes to implementing a capability-building program. However, it’s not a common practice, as we have already noted in our previous posts. Why? Companies don’t prioritize capability-building because the learning outcomes are too simple or distracting, or the key C-suite member isn’t interested. This results in lost opportunities that leave the outcome of business transformation programs up to chance.

Business Transformation Ineffectiveness

However, business transformation programs that focus on skill building are often ineffective. A Tip of the Spear Ventures survey of 120 business executives found that nearly 80 percent of respondents believed capability building was very or extremely important for the long-term success of their businesses. This is an increase of 59 percent from before the COVID-19 pandemic. Only one-third of the respondents believed that capability-building programs are successful in reaching their business goals and maximizing their impact on the economy.

A Business Transformation Case Study | Take 1

An international manufacturing corporation’s business transformation experience shows how a strong capability-building program can drive transformation. The company was in the bottom quartile of its OHI score. Within four years, the company’s OHI score had more than doubled and placed it in the second quarter.

The company’s issues of accountability and business unit communications — which were the main causes of its problems — changed the ground-level impact. Roughly 5,000 new ideas were generated by employees who are now engaged, many of which had a positive impact on the bottom line.

These ideas for improvement were a great asset to the company and helped more people achieve their goals. The company’s former Chief Transformation Officer (CTO) stated, “We can’t view everything from up here.” In other words, sometimes great ideas come from deep within the departments of a company. Leadership can help frontline employees develop their capabilities and give them the opportunity to champion an idea and be recognized for their efforts.

A Business Transformation Case Study | Take 2

Another case showed the importance of capability-building in business transformation. A module of capability-building program on effective meetings saved 2 to 3 percent of time in their employees’ schedules. This may not seem like much on an isolated incident episode, but it adds up over a year in the company that has over one thousand employees.

The company’s capability-building efforts made it more agile than its peers. One example was when a group of capability-building workshop participants sat down and predicted what black-swan events could adversely impact the plant in the next year. One of the results was a category 5 hurricane. This is not an everyday or even annual occurrence. The company had to prepare for this contingency by purchasing extra equipment and creating special procedures. As a result, the plant was back online in weeks after an actual hurricane struck. The sixfold increase in shares after implementing the transformation and the capability-building that supported it was also associated with a shorter time span of four years.

Business Transformation Research

Research points to the power and effectiveness of capability building, despite some anecdotal evidence. Recent Tip of the Spear Ventures research showed that employees who engage in capability building during organizational transformations have an effect on organizational health. Exposing at least 10% of their employees to these programs was twice as likely for success as organizations that did not. The average improvement rate was nine percentile points, versus zero improvement. The organizations that had more than 30 percent of their workforce participate in formal capacity-building programs increased by an average 12 percentile places.

These economic benefits are real. Our analysis revealed that companies that included more than 30% of their workforce in capability-building programs enjoyed total shareholder returns of 43 percent higher than the benchmarks after 18 months. The benefits are not only for employers, but also flow back to employees. It turns out employees actually love learning new skills!

SUMMARY

It is difficult to implement and sustain business transformations. Many thousands, sometimes hundreds, of thousands of employees need to be involved and aligned regardless of their location, language or culture. Organizations can develop the mindsets and behaviors necessary to drive a change and reach their full potential through capability-building programs that are effective.

Sam Palazzolo

30 Days to ETA | Day #23 – ETA Industry / Business ID

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If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #22 post I discussed how as Acquisition Entrepreneurs there is one mistake that I see time and again made by Entrepreneurs Through Acquisition (ETA), that being not having enough opportunities in the Mergers & Acquisitions pipeline. So, in yesterday’s 30 Days to ETA post, we explored ETA Deal Flow | Brokers (You can read the previous post by CLICKING HERE). I believe that if you fill your Mergers & Acquisitions pipeline with qualified companies to explore acquiring, life will become easier for you. But how will you know which businesses are right and which businesses are wrong to begin the filtering process on? So, in today’s 30 Days to ETA post, we’re going to explore ETA Industry / Business ID… Enjoy!

30 Days to ETA - ETA Industry / Business ID

ETA Industry / Business ID

Business — and therefore life — would be boring if we were all the same, right? I mean, I know that the “like” attracts “like,” or we enjoy things in life that are similar to what we like or enjoy. But isn’t diversity the key to success? How many times have you heard “Don’t put all your eggs in one basket” told to you by your parents probably? While on the one hand, I’m glad we’re not all the same. On the other hand, I’d like there to be greater similarity. I know, a catch-22, right? We all have different likes and dislikes, different preferences and tastes. It takes all of us to make the world go around.

Similarly, Acquisition Entrepreneurs come in all different shapes and sizes. Some of us who pursue Entrepreneurship Through Acquisition (ETA) have a little bit of money while others have a lot. Frugality rules some while “spend it if you have it” are the rules for others. Some may want an instant return on their investment while others don’t really care about getting a return. And what about those that are looking to sell their business? Some look at the potential long-term capital gain from selling their business, while others just want to concede to their competition.

So who are the sellers? What type of person or company sells their business? Well, there are a couple of different categories into which sellers fall, and by going through the following exercise with me you’ll identify your potential seller persona. Once you understand who your seller is, then you can design, shape, and create your ETA strategy to appeal to that particular type of business seller.

I believe that if you fill your Mergers & Acquisitions pipeline with qualified companies to explore acquiring, life will become easier for you.

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

The Low-Risk Sellers

The first major category of sellers consists of two very different types of business owners who both desire low-risk Mergers & Acquisitions.

1. The Financial Seller

First, we have the individuals who trade businesses like they trade stock. These owners will crunch numbers to estimate their return on investment in every type of detailed scenario. Oftentimes, these sellers are looking to hold the business for less than 5 years. Thus, they’ll want to know all of the ins and outs of their business so as to put it in the best light when it comes time to sell the business. They are NOT taking any risk that they won’t make a return on their investment within a very short time period.

Not all Financial Sellers are number crunchers or business traders, though. Some Financial Sellers come in the form of family members or employees who sell the company. They may want to go “5 and out” so that they won’t be taking risks and gambling with their investments. They’ll look to earn a sizable living by continuing the legacy of the company you buy. Most will hope to sell it for profit when they’re ready to retire.

2. The Strategic Seller

Now, the Strategic Seller is just a slight bit different. This individual is not looking to flip a business, per se. Rather, they’re looking to sell their business to enhance their life. They may want to add a cog to his business wheel that will work in harmony with other current lifestyle events.

But not all Strategic Seller want to divulge of harmonious pieces to their existing business. Some may be your competitors in some other form or fashion, looking to take over your customer base or market niche right out from under you. They want harmony in the sales process, but beware their underlying intentions.

The High-Risk Sellers

The second category of business sellers breaks into three different high-risk takers. These are the gamblers of the business selling world!

1. Angel Investors

Angel Investors typically work with start-up companies that show promise but have no proven track-record. Therefore, they take the most risk. These investors come in, buy part or all of the company, and help drive its success. Whenever they purchase or buy-in to a business, they usually don’t take all of the assets or buy all of the stock. However, they’ll take a majority of the interest equity in the company. This seller may look for similar high-risk, high-reward payouts from the sale of their business.

2. Venture Capitalists

Venture Capitalists are not going to sell companies at ground level. Think multi-millionaires who buy a company or take ownership of a company that has a proven track record of success but needs connections that only the venture capitalist can provide. The Venture Capitalists hope that their high-level affiliations will drive the company to exponential success, making them even more money. When it comes time to sell, they want the earth, moon, and sky!

3. Private Equity Firms

Private Equity firms are a bit different from the other business sellers because they typically only purchase the best of the best companies. Consequently, they pay the most and typically deal with the largest companies worth over $100 Million. These firms are looking to buy the next Google or Amazon. When it comes time to sell while less aggressive than Venture Capitalists, will still want a healthy return on their investment.

Business ID (Identification)

So we’ve categorized the types of low-risk and high-risk sellers looking to sell their business. Besides identifying the type of risk-taker you want to buy your particular company from, you have to look at the rest of the Business ID (Identification) demographics. What I mean is the local, regional, national, or global size of the business that often determines which types of business sellers will be attracted to your Mergers & Acquistions ETA pitch.

Those companies that operate in a small, localized area will normally seek “mom-and-pop” purchasers. These seller’s goal is to go out and get a return on their investment within about three to five years. They’re really not interested in spending a long time getting a company off the ground, so they seek an established business they can then sell for hundreds of thousands or a few million dollars. Then, they expect to recoup their investment in a short amount of time.

Regional sellers will typically sell companies that operate in larger areas that have mastered the art of scalability. These sellers will purchase companies with multiple storefronts in multiple cities or states. Because of the bigger investment and the larger marketplace, regional sellers expect to wait about five to ten years before they see a return on their initial investment.

National and/or international sellers will purchase the publicly traded or globally based companies. These sellers/investors look for companies that are the “best of the best.” Expecting to be paid more than local and regional sellers, they want everything the company has to offer and then some. With such a large investments taking place and hanging in the balance, these sellers will insist on solid profits from the very beginning. So they’ll look at selling companies that show reliable trends and steady customers.

SUMMARY

In today’s 30 Days to ETA post, we explored the concept of ETA Industry / Business ID (Identification). This post should help you identify the types of business sellers most likely to sell their business based on risk and location. If you can determine the specific seller for your future ETA company, you have an idea of which location to search for the company during the ETA search phase. If you’re ready to buy, identifying your seller persona — or at least knowing who they could be — will help clarify where and how to reach a seller that will agree to your desired acquisition price.

Sam Palazzolo

30 Days to ETA Series | Overview

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Welcome to the “30 Days to ETA” series with Tip of the Spear Ventures. Within the next 30 posts, I’ve created a roadmap entrepreneurs can follow to drive toward successfully acquiring their own business – A destination I’d like to call “Success!” We will travel along the journey of sourcing, searching, and ultimately buying a business… for profit. I’m going to outline some of the most efficient routes I found while working within our Mergers & Acquisitions (M&A) framework at Tip of the Spear.

Entrepreneurship Through Acquisition (ETA)

There are thousands of small businesses that are currently for sale, and there will be thousands more coming in the next few years. I’ll share my personal stories to help you maximize your time and money. Along the way, I’ll highlight fuel stops you can take to increase your M&A value regardless of your industry and organization focus. I’ll show you how to work on your search so that you don’t waste time working in your search.

30 Days to ETA by Tip of the Spear Ventures

Attend Webinar Workshop: 30 Days to ETA

Let’s make this easy, or “financially sound” if you will. I’ll show you the steps to the successful acquisition of a business, and how to get there quickly and profitably. 

What advice would I give my 25-year old self? Get to Mergers & Acquisitions faster in your career path (It’s the most fun I’ve had in my entire career!)

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

As part of our mission of teaching the Entrepreneur through Acquisition (ETA) leader how to make their search a valuable asset (not just believe it has value). The goal is to take you through steps of how to source, search, and ultimately buy a business. In my years as an entrepreneur, in both startups and M&A, I have seen many common trends – some successful and unfortunately unsuccessful business owners. In this 30 Days to ETA series we will discuss both — and other topics in between — in easy-to-understand and simple terms. I want you to understand how you can buy a business and SHOULD do so now rather than later.

Go Fast Alone… OR Go BIG Together!

Why would I share this ETA information? It’s simple… If you like what you read then you can do one of three actions:

  1. DIY – You can go out and attempt to buy a business on your own. Afterall, you’ll know just enough to be dangerous!
  2. JOIN ME – I’m always looking for top-tier entrepreneurial talent that wants to own/run a small business. Partnering with you is my best strategy to grow our M&A practice. You can go fast alone, or you can go big as a team! Drop me an email at Recruiting@TipoftheSpearVentures.com.
  3. DO NOTHING – You’ll gain a lot of valuable information here in this 30 Days to ETA Series. Maybe you’re the type that likes to learn and never take action?

I hope you enjoy the series!

Read 30 Days to ETA | Day #1 – Startup or Acquisition

Sam Palazzolo

9 Lessons In 9 Years at Tip of the Spear Ventures

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February 2012 – I am a 2%’er. Apparently, and I wouldn’t know this until later (much later!) that less than 2% of all entrepreneurial startups achieve successful exit. The experience of raising $8Million, launching a technology software startup that received consumer traction, and having a private equity firm acquire us was incredible! But now what? As I sat on a rock overlooking the ocean in San Diego, CA, I thought back to how it was just 7 years earlier that I had done the same to envision what was to come. “Now what?” was the question I was asking myself again, looking to the horizon where the sky meets the Pacific.

I knew that I enjoyed the private equity experience, and after a few moments determined that was what I wanted to do next. I wasn’t a total stranger to the financial space, having my formal education in Accounting and spending my formative years working in Strategic Planning and Finance. In the 9-years since that day, I’ve built something that I’m very proud of and I’d ike to share with you 9-lessons I’ve learned along the way.

Lesson #1 – Define Your “What?”

What are you made of and what do you offer? This is the “metal” that has been tested at Tip of the Spear everyday. We’ve “pivoted” over the years with different ventures, but the one mainstay was that we are “what” others should desire to be (Namely a group that puts forth A+ effort and content deliverables).

Lesson #2 – More People, More Problems

If you’ve hired as a part of your leadership journey, you know the pitfalls that can come with doing so. We’ve been at different times over the 9-years a small and big organization. I’m happy to say that we’ve settled on a model for the future that includes clustered growth. 

Lesson #3 – Think Strategically, Act Tactfully

In the heat of business, I want to win. I assume you do as well. However, and this was key for me, those “win” moments or victories that I sought to win were often at the expense of the war. I was reminded to think strategically and to act tactfully by an executive coach. The difference in thought/action appears in everything we do now.

Lesson #4 – It’s Lonely at the Top

I originally had a partner at Tip of the Spear Ventures. They were a silent partner that was low on injecting capital, but high on injecting their opinion. At about the three year mark we determined that parting company was best for the company (and us as individuals). I would rather be lonely than miserable.

Lesson #5 – It’s Lonely (but Don’t Go It Alone!)

This piggybacks off of Lesson #4… Even though you’re alone at the leadership helm of your firm/organization, you don’t need to go it alone! While opinions are like you know whats, if you tactfully align with peers/mentors you’ll achieve desired strategic outcomes faster.

Lesson #6 – Change Lives!

Opportunities to make money are everywhere, especially if you look for them! What might be even less obvious is the ability to change lives. I’ve been fortunate to receive recognition that what I was doing was actually making a difference for the people that I worked with. It is simultaneously humbling and rewarding.

Lesson #7 – Time… 

You, me, everyone only has 24-hours in a day. What are you doing with it that maximizes your efforts?

Lesson #8 – Agility

While processes and procedures form the structure of a successful business, the ability to be agile is a key differentiator. Want to stand out from the crowded crowd? Become agile!

Lesson #9 – It takes Blood, Sweat, & Spears!

I sometimes have to pinch myself… I’m a city kid from Detroit that was as my Mother says “Born in the shadow of a Ford manufacturing plant’s smokestack.” How far I’ve come has only been limited by my ability to imagine, visualize, and then take action. At one of our Boot Camps a few years back in Las Vegas, one of the participants accurately summarized that “Success takes blood, sweat, and tears!” The conversation morphed to one of “Blood, Sweat, and Spears!” which has stuck with us ever since (We’re running another Boot Camp starting 2.21.2021 for those seeking Entrepreneurship Through Acquisition). 

SUMMARY

These past 9-years have taught me so much, and I know that the next year will be even more insightful.  I’m determined to further establish in our ninth year the foundation that will drive the firm forward for the next two decades. I recognize that what worked in the past might not necessarily work in the future, so we will have to continue to evolve.  It is my goal to build an institution that outlasts me and continues serving entrepreneurs for generations to come. 

Sam Palazzolo

Business Funding – Subscription Models

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The Point: We’re often asked at Tip of the Spear Ventures, “What are the best ways to go about business funding – Should we consider subscription models?” The short answer is “Yes.” Subscription models are yet another way to accomplish business funding over a traditional capital raise. So in this article we’ll explore business funding through the use of subscription models… Enjoy!

Small business funding refers to the way in which an aspiring or already existing business owner obtains cash to launch a new business, buy an existing business or increase capital to finance future business activity. Business funding can come in many forms, but the most common sources are angel investors, venture capitalists or third party lenders. Entrepreneurs looking for startup capital should take note that all investors are not created equally and each has different goals and business needs. So it begs the question, “Why not explore customer funding options, specifically subscription models?”

Entrepreneurs should consider carefully how they plan to use any business financing options and should always have a game plan before approaching a private investor or a bank. Often it’s the case that entrepreneurs don’t even need to approach an outside funding source. A number of private investors offer startup capital at a discounted rate to entrepreneurial risk candidates who possess a well-developed business plan, a strong personal credit history and a steady track record of profit and loss repayments. To attract and qualify for such financing, entrepreneurs need to demonstrate a strong business plan with a well thought through exit strategy. Additionally, entrepreneurs should develop a set of metrics to track key metrics such as customer satisfaction, profit margins and return on investment.

When it comes to small business funding, entrepreneurs should also keep in mind that there are several options available to them. There are many different types of startup loans including bank loans, credit unions, commercial real estate loans, equity loans from family members and friends, working capital options from multiple lenders and lastly, entrepreneurs can tap prepaid credit cards as working capital. While some entrepreneurs may have better success securing business funding through more traditional means, most borrowers fail to secure enough capital to launch or expand their operations. There are several successful stories of entrepreneurs who obtained small business funding on a shoe string budget. If you have the desire and the ability to be financially secure and succeed in the entrepreneurial business environment, then you may want to consider applying for funding from a private lender. All of this said though, an avenue to pursue before doing so is the applicability of a subscription model as a way of raising capital for your enterprise.

Sam Palazzolo