What happened to the good old days of assets and profits driving valuation?

Originally published on October 2, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-money/what-happened-to-the-good-old-days-of-assets-and-profits-driving-valuation/article26513690/

It’s taken me a few months to get over my shock at the fact that a recent equity offering valued Airbnb at $25.5-billion (U.S.). That’s more than most hotel industry giants, such as Marriott International, Starwood Hotels & Resorts or Wyndham Hotels and Resorts, and, depending on the day, about the same as Hilton Worldwide.

I’ve been trying to find the words to describe this valuation, but the only one that comes to mind is “ridiculous.” Yes, I’m an innovation guy and a huge believer in the power of digital and the sharing economy. But, the finance guy in me cannot figure out a true rationale for ascribing such value to a seven-year-old company with few assets and growing annual losses.

What happened to the good old days of assets and profits driving valuation?

At its core, Airbnb is simply a technology-based booking system that matches renters and providers of short-term accommodations. This is a model that can be easily replicated.

I believe that one of the great hoteliers listed above should have already pioneered this niche. They all have different brands in their chains, serving different markets. One of them should have created the “lifestyle” or “experience” banner that does what Airbnb does – matching travellers with locally owned “rooms” that bring travellers closer to local people and culture.

All of these large hoteliers have the ability to book rooms online. They also have existing systems to review and monitor rooms, service, and customer satisfaction. Should one of them step into this space, I believe that Airbnb will quickly become a financial afterthought.

So how does this relate back to hard-working entrepreneurs like you and me, who are just trying to create some value for others and build a business that will fund our retirement?

In today’s unpredictable, trend-driven world, you have to ignore the hype and put caution first.

Entrepreneurs all dream of the big payday that comes when they sell their business to a motivated bidder. For some, that day will come. For most of us, however, the big cheque will remain just a dream. Most businesses haven’t been engineered to thrive, years from now, without their current owners. The doors simply close and the lights go out one last time.

Worse, many entrepreneurs simply aren’t financially ready for retirement. Their savings are light, because they’ve reinvested in their business in the hope of one day reaping a huge bonanza. So what happens next? The burden of retirement becomes shared by your whole family.

Sorry for the downbeat picture, but it’s one that I’ve seen repeated all too often. And it’s a storyline that’s exacerbated by what I see as the new investment algorithm: Hype > Revenue + Margin + Profit. All your work can be undone in a few months by focused disrupters or simple hype.

The good news is that there are at least two distinct ways to guard against retirement aftershock.

The first is to work hard to ensure that your company remains relevant. This may take more direct action than you’re used to. As Steve Denning reported in a Forbes article, “The average life expectancy of a Fortune 500 company has declined from around 75 years half a century ago to less than 15 years today, and heading towards five years if nothing is done.”

Whatever success you’ve enjoyed in the past, there is no more resting on your laurels. Stir up your team, re-engage with your customers, make things happen, create more value. And keep on pushing and prodding till the day you hand over the keys.

The second strategy is to think of your business as just another employer, and plan your finances accordingly. I have never believed in tying up all of my hard-earned capital in my business. Take some out, put it away and save for retirement (as the commercials tell us). What’s the worst thing that can happen? Significant savings and a big payday? I’ll get over it! Bottom-line: Global finance has a new valuation tool – hype. But it’s old-style asset-building that can help fuel your retirement.

No comments

‘Make a decision or you’re fired’

Originally published on August 7, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/make-a-decision-or-youre-fired/article25795156/

On my first day of work early in my career, the owner of the company that had just hired me sat me down and told me he had two simple rules. First, if a situation called for a decision and I didn’t make it, he would fire me. Second, too many bad decisions would also get me fired.

No, he wasn’t Donald Trump. But he was a successful, hard-driving entrepreneur. And while his motivational speech may seem brusque, I found it clear and sage advice that has remained with me throughout my career. After all, it takes both action and intelligence to produce results.

What reminded me of this encounter 25 years later? As my own organization grows, we’ve been considering our internal structure. And I’ve come to realize that consistently effective decision-making is still the key to success.

I took some time on a recent vacation to read a slew of articles and books about different approaches to organizational structure, new and old. I read about hierarchy, matrix and meritocracy, all the way to holacracy (where management throws up its hands and lets self-organizing teams make up their own rules). I tunneled my way through a mountain of models, a throng of theories and a plethora of prescriptions, all pointing the way – in different directions, of course – to leadership nirvana.

At the end, however, I felt that every article I read, every organizational chart I examined, seemed to have missed the point. All these experts focused on how their structure is better than all the others at facilitating communication and team dynamics. But is that really the goal? All talk and no action doesn’t work in the movies, and I don’t believe it’s a recipe for success in business either.

For me, management structure should be the tool that best enables corporate decision-making. Nothing more. And certainly nothing less.

Success in business comes from the ability to make a series of incremental, informed and inclusive decisions. The organizational structure that we choose, the style of communication we encourage and the corporate culture that we craft must all generate critical decision-making capability.

To do that, any structure must begin with a discussion of leadership – not lines, squares, circles or matrices. High-quality, self-aware leadership is a critical component of a healthy organization and its culture, regardless of industry or sector. We all face the same challenges, especially in a tight labour market. Good people rarely leave good jobs – they leave bad bosses.

Quality leadership is the answer, whether you are trying to disturb the status quo by building an innovative culture, creating a compelling employee proposition that appeals to all generations, promoting workforce retention, developing in-house talent rather than going out and buying it, or simply creating a continuously engaged customer base.

Management expert Jim Collins blew up the notion that the top knows best in his 2001 book Good to Great. He discovered that the best-performing American companies of the past 20 years had one thing in common: truly humble leaders who inspire performance by setting standards, not issuing orders. Leaders who think they have all the answers may get results in the short term, but they don’t build resilient organizations that continue to thrive after they leave.

True success comes from collaboration. In her new book Profit in Plain Sight, Anne Graham encourages creating a company-wide culture of alignment and engagement, saying: “Infuse your employees with possibilities.” According to Graham, this means “embedding the desire to be part of something more, to be the best, to behave every day in ways that add value to your customers, and to earn profit with integrity that will help the entire company grow and succeed in the future.”

Your people do not want a leader to be an inflexible “boss” or “driver.” They are more successful when their leader is confident but not commanding. They are waiting to be energized by leaders who can put meaning back into their work.

The best leaders today are partners, always willing to talk about personal development, mutual interests and solving problems together. In this context, work is no longer a burden imposed from above, but a shared goal, best achieved through a common commitment to innovation and improvement. Employees want to perform and to grow, but they’ll only do so when they know they have the ability and freedom to make decisions that will drive the business forward.

The best motivation is not the fear of being fired – it’s the fear of not living up to a leader’s expectations. So long as you make the following traits part of your leadership brand:

  • Inclusiveness. You can’t expect people to make informed decisions if you don’t keep them up date on the company’s goals and objectives.
  • Clarity. Provide clear objectives for your organization, department or product line so your employees know the directions you wish to go in and what results you hope to achieve. Otherwise, your team members won’t know how to make the right decisions. Or worse, they won’t make any decisions at all.
  • Focus. If you meander and waffle in your own decision-making, you can expect the same nothing less from the people you are leading.

So many companies now are reviewing their structures to ensure they have the right recipes for success in today’s fragmenting markets. Before you build (or destroy) your own structure, remember that self-aware leadership is the true driver of decisiveness. Structure is simply the tool for its execution.

Of course, we can still get fired. Once the leader/CEO makes a decision, everyone gets a say in the outcome. Team members can vote by disengaging (or disembarking). Customers can vote – by buying elsewhere. And your boss, whether an individual or a board, will cast the deciding vote. Those who encourage the broadest approach to decision-making don’t just have the best chance of getting it right – they have the best chance of getting another shot at it, too.

No comments

When did entrepreneurs become so incurious?

Originally published on May 8, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/day-to-day/when-did-entrepreneurs-become-so-incurious/article24310344/

Entrepreneurs are supposed to be the mavericks of the business world. They’re the idea generators. The marchers to different drummers. The innovators who drive the economy forward, by starting businesses and launching new products and services. They redefine technology and change the world around us.

At least, that’s how I’ve always thought of them.

Lately, I’m starting to wonder if some entrepreneurs are losing their sense of curiosity, along with that distinctive maverick swagger that makes them such crucial builders in the business ecosystem.

My clues? At the seminars, workshops and business events that I’ve been attending recently, more of the attendees seem to come from big companies – and fewer and fewer come from small and medium-sized businesses. It’s disappointing really.

Personally, I’m happy to learn from companies large or small. And I’m sure that event organizers don’t really care who buys their tickets. But from the perspective of learning and sharing of ideas, I believe that everybody loses. Large companies appreciate the candid, fresh voices of true entrepreneurs. Entrepreneurs can always learn something new from one another, as well from the attendees of the national and international organizations that we all hope to grow up to be.

In my column last month, I noted the stunning reality that 80 per cent of new businesses fail. While there are a host of reasons for all these fatalities, I believe that one of the very real answers is that, at the slightest taste of success, many entrepreneurs become complacent and incurious.

We allow ourselves to get lost in our little business bubbles, relying on today’s products and services to drive future success. Let’s be honest, we can get so focused and myopic that we often neglect to do the things that earned us our success in the first place – getting out of the office, meeting people and asking as many big-picture questions of ‘the crowd’ as we can.

It is a lovely notion to think that we can hole ourselves up in our new business and bide our time till the big ‘cash-out’ at the end of the road. But this tactic isn’t practical in an economy that demands continuous improvement, refinement and even replacement of our products and services as a matter of course.

Consider the digital picture frame. Ten years ago, these electronic photo albums were all the rage. Today they’ve been replaced by smart phones and tablets. And how about those Bluetooth headsets? Just a few years ago when the laws began to restrict drivers’ cellphone use, we couldn’t buy these items fast enough. Today, it’s hard to find a new car that doesn’t have hands-free built into it, complete with voice-assist and even access to intelligent personal assistants such as Apple’s Siri – rendering the headset embarrassingly passé.

Bottom-line: today, everything moves from ‘the rage’ to ‘remember when’ before you can say “Trivial Pursuit!”

You need to top up your product and service offerings just like you change the oil in your car. When we neglect to change the oil, our engines stutter, seize and ultimately die.

It’s no different in business. No business succeeds without revenue and, ultimately, profit to reinvest in the future. Revenue is generated by satisfied and engaged customers. If you neglect to constantly re-engage your customers with the new and different, they will quickly find a competitor who does.

If you want to think about it as a continuum, then understand that innovation drives marketing, which drives sales. If you take innovation out of the equation, your funnel loses the raw material that drives growth.

Sorry if this sounds doomsday-ish, but, unfortunately, innovation is no longer a nice to have. It’s a very real need. As our markets evolve faster and faster we have to ramp up our innovations and improvement, not cut back. Innovation isn’t an occasional remedy, like a cough drop, but an everyday necessity, like water.

All this means that innovation – sparked by curiosity and fuelled by constant communication with customer – has become a core competency of today’s successful businesses.

If you’re not ready to give your customers what they want, keep in mind that innovation is also an engagement tool for your team. Today’s employees want to be involved in exciting and meaningful improvement projects.

When I went into business I was taught that to succeed, I had to join a company, put one foot in front of the other, keep my head down and shut my mouth. Today we know that management has no monopoly on creativity. Everyone in the organization deserves and expects to have a voice, to engage in ideation and add value beyond the day-to-day.

If your company culture has moved from thinking, questioning and dreaming to just doing, watch out. Your best team members will gradually disengage, and likely revert to one of the first skills they ever learned: walking.

Revenue, profits, engaged customers and motivated teams are all crucial to your business. Keeping them strong takes constant feeding and renewal. That’s why it’s so important to hold your head up, sniff the air for new ideas, and keep questioning. Only the curious can change the world.

No comments