Stephen H Baum Leadership

Thriving in the New Normal

What follows are notes from a conversation yesterday with Jim Blasingame, who has his finger on the pulse of small business, His website is one of my faves:

Small Business advocate

My world includes small business owners, corporate CEOs of firms owned by
private equity outfits, private equity firms themselves and corporate CEOs of
public companies. These are members of my Vistage peer advisory group or private
coaching clients.

In the summer of 2007, some of these men and women were atop companies which are

leading indicators of the economy (staffing, employment screening, some consumer
facing businesses) and they saw a storm coming. We all battened down the hatches
before 2008  and were the better for it. In late 2008, these same people were
seizing very selected growth opportunities (e.g., acquisition of a distressed
competitor, hiring a special talent at considerable compensation package).

What do I see now? An “un-frothy,” but intense focus on taking the company to
the next higher level. What does this mean? In the specific actions, I see four
themes:

1. Continued vigilance against cost creep, protecting hard won fiscal fitness
2. Seizing selected opportunities for  growth
3. Upgrading the bench
4. Taking money off the table

I’ve changed the names for obvious reasons, but here is what is happening:

1. Vigilance with Hard-Won Lean Cost Structures

Gerry’s company  off-shored many jobs to Inida in 07 and 08. But his cost
containment here in the U.S. is disciplined. He still reviews virtually every
expenditure and his people know they have to justify spending as if it were
their own.

Virginia is pressing her large public company to propose capital expenditures
and operating cost investments where significant competitive advantage can be
generated. But there is a strong discipline about any other cost or investment
down to a zero threshhold of any that are not already budgeted.

Bobby has replaced general managers who have not been able to do more with less.

Several are avidly pursuing legal ways to minimize state taxes as some state have taken what they see as unreasonable stances toward business.

2. Seizing Growth Opportunities

Bobby’s company owns several restaurants. He is at the LOI stage with several
opportunities to extend his brand with much bigger and more famous companies in
entertainment destinations. However, he is sticking to his guns, ready to walk
away from any deal that isnt advantaged financially for him.

Peter’s small asset management firm has hired three new salespeople and
introduced a new international product. Bernie’s consumer business with many
physical stores has bought a competitor and is keeping their brand to offer
consumers more choice. He has also recently invested in on-line capability for a
different segment of the buying public.

Ken has spawned two spin-offs in businesses related to his own and stewarded
them to make recent acquisitions.

Gerry has made small acquisitions of both distressed competitors and a company
with a product he coveted for a long time. They hadnt managed as well during the
recession. Now he has his sights on more roll-ups and the bank has no better
client in terms of making his numbers through tough times and ability to
integrate acquired talent into his company. They admire the process he has
developed for due diligence, synergy calculation and bid price.

Stephen’s medical system is investing in new deals with doctors to  make sure
that no matter which way health care reform goes, he is well -positioned to
thrive.

Victor has encouraged his international executives to put pedal to the metal in
China. And he is having conversations with a company who has a complementary
global footprint to do an acquisition that will tax the financial and human
ability of the company at least in the short term.

Gerry’s business is now sufficiently international that this formerly
penny-managing owner has obtained a new phone system that enables anyone
anywhere to see each other in secure video.

3. Upgrading the Bench

Gerry has found and hired all-stars in mergers and acquisitions, product
development and IT at what would have been scary compensation. But he knows he
needs to do this to take his company to the next level.

We mentioned Bobby replacing general managers with people with “spare capacity”
— people who can do their jobs at 80% of their capacity, who dont need to work
24/7 all out to succeed.

Spencer’s professional service firm  is slowly winnowing out the old guard who
either lack the ambition for excellence and enhanced performance in the
marketplace or cannot master the new practice standards and rules of engagement.
And they have hired staff people with superior talent at stretch, but affordable
compensation.

4. Taking money off the table

Any one who can do this is doing it. And in every which way: re-financing debt
to take money out of the business; attracting a private equity investor; selling
control to a private equity firm or strategic buyer. Investment bankers are
having their best year in quite a while.

For the smaller businesses, raising the pay or take-out of the owner, long deferred during the crisis, is now a good idea.

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From a personal point of view, And I am investing in a private equity fund whose
partners have demonstrated the abiity to find under-valued companies and work
with them as partners to create value together.

And for what it is worth, my eldest son decided that his family would be better
off not living in Minneapolis for another winter and decided to leave his senior
P&L job  (merchant of women’s apparel) at the famous retailer and move to Menlo
Park. It is clear that the market is moving upward if from nothing else the
number of companies who have materialized in the past month with offers to him
to join them. As we know, timing is everything. They range from manufacturers to
retailers to technolgy companies with apps and aspirations in his field.

Do I or any of these leaders believe there could be a major setback? Of course.
A terrorist event, mother nature teaching us a lesson again, and a  financial
crisis are all worries. But the fundamentals have persuaded them to take
calculated risk while staying fiscally fit. These are not Wall Streeters who can
take outsized risks with high leverage because they can escape the consequences.
These are people who eat what they serve and will be around after the results of
their decisions, good or bad, are known.

That’s my view. What’s yours?