A Tale of Risk and Reward

The Tale of The Well Next Door

There’s an old Scottish tale of a frog living in a damp well. One day, another frog from a large pond hopped past the well. Interested in all things, this adventurous frog looked down into the dark depths and leapt inside. 

Intimidated by the interloper, the first frog asked, “Who are you and where did you come from?”

The pond frog said, with a nod at the top of the well, “A large pond filled with water many times the size of this well.”

“How big is this water?” The well frog pointed to a boulder at the edge of the well. “Oh, many times the size of that boulder.”

“As big as that?” The well frog gestured at the shadow of a weeping willow tree.

“Much bigger.” 

The well frog was momentarily struck, “How much bigger, then?”

“It’s many times the size of your well and it’s quite close. We could travel together to see it.”

“Why would I do that?” He regarded the pond frog suspiciously.

“You would have more water.”

The frog in the well gave a sideways look as if to say, “Oh, a wise guy, eh?” and swelling up with enough irritation to pop, said decisively, “Get out! Get out! I want nothing to do with frogs like you.”

“Why, because I can show you a bigger view, more flies to catch?” The pond frog realized that this frog was afraid to go beyond the bricked walls he had known for so long. 

“Nonsense. You are trying to trick me out of my well.”

With that, the pond frog shook his head and hopped back into the sunshine. 

How to Make Your Business More Attractive for Sale

Where is my business in its lifecycle?

When the market fluctuates, it can shift, which means the value you thought your company provided might no longer be that way to investors. Here’s how to mitigate that gap. If you’re contemplating selling your business, there are certain things you can do to add to the valuation of your company.

I penned this piece for the Globe & Mail in 2013, following a few years after the crash of 2008. Learn how to prep your business for a better valuation, regardless of market volatility.

Read the article here: https://tgam.ca/3v6BIY4

6 Reasons to Work With an Exempt Market Dealer (EMD)

To attract investors, you must demonstrate your company’s value.

Public companies have the advantage of IPOs, acting as value signals on the open stock market. For private companies, proving value can be more challenging - a challenge best suited to the hiring of an exempt market dealer.

In a previously published article for PCMA, I outline 6 reasons for hiring an EMD for their capital raising expertise.

Read the article here: https://bit.ly/32xOoet

Five Questions to Ask Before You Sell Your Business

Have you heard of Vega protein?

If so, then you have also likely heard of its founder, Charlie Chang, who sold the company for $550 million. But what’s most impressive about this deal is not the total sum, but the strategic way he went about it. “Mr. Chang brought in private equity experts as partners for a minority position several years before the sale. The result was a far bigger valuation than if he had sold 100 per cent of the business in one transaction.”

If you ask the right questions, the result can be far more impressive than you can imagine. Here are five questions you should be asking yourself to prep long before the sale of your business.

*This was published a few years ago for the Globe & Mail.

Read the article here: https://tgam.ca/32yAJDZ

Do Business Owners Have a Bias Against Risk?

Do business owners have a bias against risk? And if they do, how much does it really affect the business over time?

In a previously published article for EMDAC, I talk through my answer, which is actually, quite a bit. “The penalty to the business owner and their company with this low risk vs. reward bias is that the company ends up with underinvestment and fails to achieve financial performance.”

The good news? There are two great options for both the growth and protection of your business.

Read the article here: https://bit.ly/3n808O4

The Best Mergers Get the Timing Right

What is the intended impact of the acquisition on your business?

For a Merger and Acquisition Strategy to work well, both the acquirer and the acquiree need to understand the bigger vision: What is the strategic alignment? Is there an effective integration plan? Does it account for cultural fit for both companies?

The call to merge for the benefit of fast-tracking your business can be great, both as a small or a large business. But knowing what the long-term end game is will keep the fast-track from hitting a wall.

Previously published for the G&M.*

What are some other questions that need answers when planning a successful merger?

Read the article here: https://tgam.ca/3sGacPo

My Role as a Board Member for the Toronto Atmospheric Fund

One of the best parts of my position is being able to invest my time and money in things that are important to me, even outside of my work. That’s why I am a part of the Board of Directors for the Toronto Atmospheric Fund, an organization moving the needle on lowering carbon emissions (and scaling them) in the GTA - or in other words, close to home.

I enjoy discussing these topics with others who are as passionate about developing and implementing actionable, long-term solutions to some of the greatest issues we face today as a community. If you’re considering impact investing going forward, let’s discuss! Reach out for more information. Happy to chat.

For more information, check out the Toronto Atmospheric Fund website here: https://taf.ca/

Family Firms Tend to Reject Outsiders

“A study by McKinsey found that a key reason family businesses survive beyond the second generation is through the appointment of professional management.”

It’s hard to bring in an outsider to help you run aspects of your business, and to trust that person to put in the same blood, sweat and tears as you do. Interestingly, though, these legacy businesses tend to outperform corporations both Public and private. With data like that, bringing in a CEO that doesn’t know you at all, becomes a lot easier and in the long run, a lot safer too.

I wrote this some years back for the Globe & Mail.*

Read the article here: https://tgam.ca/3erNnKy

Running a Business is "All About the People" for John Rothschild

Food is a “trendy” business, and according to John Rothschild of Prime Restaurants Holdings, there is a good way and a bad way to handle it.

“Keeping all your eggs in one basket, the business, is risky. Diversify long term wealth preservation for your family. Take some money out of the business in a disciplined, mechanical way and by keeping a piece aside, you can take the risks in the business, but have a nest egg for the family.”

If you’re interested in or work in the food sector, this one might be for you.

Previously published in for the Ivey Business School website.

Read the article here: https://bit.ly/3ejkf89

Books That Influenced Me

The Trillion Dollar Coach, gives detailed stories from people who worked with Bill Campbell and these bring alive how Bill pushed, prodded and pulled the leaders of several prominent companies, such as Google, Apple, and Intuit. Bill gave time and built trust which allowed the burgeoning of deep relationships with Silicon Valley visionaries, including Steve Jobs, Larry Page, and Eric Schmidt. Bill spent long walks every Sunday with Jobs, for example, confirming to me the power of how to use a coach for your sounding board and weekly planning.. Bill also used truthful feedback, delivered privately but with a hug to lessen the sting. Hopefully, one day we can get back to that physical style of support.

The chapter on boards was particularly useful to me. If you are a board director who does not read the materials prior to a meeting, asks superfluous questions and likes the sound of your own voice, you would not last with Bill Campbell. There were a great many more concepts generously shared by Eric Schmidt and others which I valued. Bill can be seen on many YouTube videos too, but this book was well worth the time to dig into details about Bill’s coaching, and to think about how you would have listened and applied his gruff guidance.

Trillion Dollar Coach - Bill Campbell

The Leadership Playbook of Silicon Valleys’ Bill Campbell - by Eric Schmidt, Jonathan Rosenberg, Alan Eagle

“The book tells the incredible story of the man behind the successes of some of the titans of technology. When your list of “coachees” includes Steve Jobs, Sheryl Sandberg, Sergey Brin, Marissa Mayer, Larry Page, Mary Meeker, Eric Schmidt,... you have to think he had something worth knowing about. What really hit home was that one of the common themes was the importance of getting to know your team and truly caring about them. “Make the human connection first, then approach the work with that understanding.”

Do Your Short & Long-Term Plans Speak to Your Value and ROI for the Investor?

Show me the money

If you’ve got through the first three questions, investors are ready to get serious and decide if they are going to give you the money. Do not make the mistake of going with your story and expecting them to figure out the amount of money you need and how you are going to pay them back. To get the cheque books flipping open, you are going to prove three things:

1. What is the growth rate to make the business worth backing? 

2. What is the return on investment? This depends on company size, but can range from 8%, 25% to 40% plus.

3. How will your investor get out his money (exit) within his desired time frame? Demonstrate that you get the importance of an exit plan for the investor. 

What Is your financial growth? 

The investor needs a financial model that is built with real numbers from the past and detailed numbers going into the future. This is where many businesses fail. They do not understand the financial funding models built by business analysts. A soundly constructed model separates the wheat from the chaff, the growth business from the plodders.

There are drivers that make the money come into the piggy bank. For example, one of Tim Hortons’ drivers would be the number of customers per day. How would you increase that number? How much would it cost to increase that number? What is in the plan to show that the customer numbers will keep going up? Opening new coffee locations? Specifically, state what you will do with the money. Have clear action plans to demonstrate you know what to do once the money gets you on the runway. What’s the destination and who’s doing which job? The investor can play with the model and increase or reduce the drivers. For example, they could see what the returns would be if you only opened half the number of franchises you said you would. The investor will use your model to test your assumptions of what grows the revenue.

How to value your business

Mr. Deep Pockets ends our lunch with cups of rich Kenyan tea, and I decide now is the time to bring up the tricky subject of valuation. Fund managers think this is their sole territory, but it’s a huge controversy for owners. Valuation is the huge sticking point for all concerned. Some business owners accuse finance people of throwing the bones to come up with a number while finance people argue that owners have too much emotional investment in the business and see it through rose-coloured glasses.

Mr. Deep Pockets pays the bill and mulls over my question. As we stride back to the elevators, he finally speaks, “Value is in the eye of the beholder. It is that mix of art and science. Albert Einstein said that after a level of skill was achieved, science and art tended to blend. He believed the greatest scientists were artists too.”

I nod. 

He was on a roll, “Then throw in the incredible importance of timing because values are cyclical; you need to catch the peaks.”

I nod, “I suppose the baby boomers getting ready to bale, will drive down values soon?”

“Absolutely! Also, different buyers use different valuation methods. A business is worth what a buyer will pay. It all depends on the type of buyer.”

Curious now, I ask, “What are the different types of buyers?”

“Broadly speaking, they can be loosely grouped into two camps. There’s the “Financial” versus “Strategic” buyer. Come into my office and I will show you the difference.”

He sketches a diagram. At a glance, I see that valuation is driven by two simple concepts: financial and synergy. 

Financial valuation is given by laying out expected profitability or the future earnings. This valuation is used by professional fund managers and venture capitalists. A strategic valuation is given by competitors, suppliers or customers who could buy your company to fit into their business and value it more. 

strategic valuation will give you the most cash for your business. The greater the “fit”, the bigger the premium. All this means is plan your exit for years by knowing competitors and suppliers who might buy you.

Valuation by future earnings

Here’s where you show how much they can make on their investment: what is the value  today and what will it be in the future? Value boils down to the future earnings. The best way to see future earnings is to look at the present and make some projections. This is called discounted cash flow and you can find details on these in any introduction to finance text book. Investors get quite huffy about who sets the valuation as they believe it to be their prerogative. Nothing sets them off in a tailspin faster than a presentation or plan with a value attached. Do wait for the investor to throw the first valuation shot but you can have your own valuation estimate. 

The exit

We leave the building and Mr. Deep Pockets jokes, “That brings me to my final point. I want to see the exit strategy defined. How are you going to get a liquidity event?”I shrug, not sure what he means.

“You know, this is really important to know when looking for investment money from private equity. Within five to seven years (or less), the typical investor wants to exit. The entrepreneur will need a major cash infusion event to pay us off. This exit could be done by going public with an IPO. That was the favourite from the 90’s, but today the favourite is management buy-outs. You could target a competitor company that might like to buy your business.” 

This was the exit plan for a coffee shop entrepreneur in London—Big Ben and the Queen and all that. The Seattle Coffee Company owner designed his coffee shops to be bought by Starbucks. He even made his signs the same size and round shape. All the new owner from across the Atlantic needed to do was pop out the Seattle sign and snap in the Starbucks. 

With baby boomers about to start leaving the business world, investors are acutely aware that five years from now there may not be the easy exit. Help out and have a solid list of buyers. 

What exactly is “Investor Ready”

With the long-term view, you can work on how to affect the value of your business. That is the application of Covey’s very good habit: Begin with the End in Mind. Figure out the four questions. To summarize how to get investor ready, the investors’ hot buttons are: 

• Your Team

• Proof of concept: The investor wants to see that you have designed a light bulb, have made it, turned it on and sold it to a happy customer. 

• Competitive strength: Patents, barriers, partners and alliances: If Sony has offered to give you some chips to use in your technology, this is newsworthy. Alliances can be a deal maker.

• ROI: Are you going to be able to grow the business sufficiently?

We will go into more detail but there’s the big view. As I take leave of Mr. Deep Pockets, I see nervous looking people fidgeting in the waiting area and smile. Mr. Deep Pockets has given the inside scoop on the questions the plan and presentation must address.  As Leonardo da Vinci said, “Simplicity is the ultimate sophistication.” We need to work at refining down your business to a simple, but sophisticated concept. You will need:

1. The initial two sentence pitch—the infamous elevator pitch. 

2. A written investment proposal document—the financial plan 

3. A practiced verbal presentation and PowerPoint presentation

Each investor you are going to approach will judge why they should give you money. Your job is to make that process as simple as possible—you will show that you are beyond the string and chewing gum stage. You are ready to maintain a mature partnership. Let’s carry on reading and you will learn how to show future value and to put together a financial opportunity that gets investors shouting, “Yes—go straight to GO!”

** This is an excerpt from part 3 of my book.

How Private Equity Can Help Your Business

The benefits of private equity

When the announcer yelled out, “The winner of the Media category, Ernst & Young Entrepreneur of the Year—Somerset Entertainment!” Andy Burgess grinned and bounded up to the stage to collect the award.  It all looked so easy to be standing there in a tuxedo waving the trophy, but this moment of appreciation came from painful years of slogging late into the night. 

Andy Burgess is one of the owners of Somerset Entertainment, which produces and distributes specialty music initially to gift stores and other non-traditional retailers using those interactive displays where you can push a button and listen to the CDs.   They have 28,000 displays in over 18,500 locations, which now include mass merchants and specialty stores.

With business and Juno Awards filling their shelves, Somerset Entertainment did various acquisitions and moved from $5 million in revenues to $11 million, until eventually they were achieving $21 million in revenues. They bought a distributor and in 1998, levered up with four flavours of debt: term debt, mezzanine debt at 17% interest rate, revolving credit and a vendor take back loan. Then the cracks began to show. 

The Buffalo distribution fulfillment centre had been shipping comfortably to over 100 different retail points when Andy asked, “Can you do higher volume?” Naturally, they answered, “Yes!” when in fact that was far from the truth. Somerset had been a company with $8 million revenues and $2 million in EBITDA (earnings before interest, tax, depreciation, and amortization—see glossary) but had grown into the supply chain approach with a distributor turning out to be slow and with the uncanny ability to mess up orders. They would say they had shipped goods—the display case with CDs—and Somerset would then invoice the retailer who, turns out, had not received anything except a bill. It was October—prime pre-holiday selling time with the Christmas season around the corner. Not good.

American retailers are the toughest sons of guns and were furious at being bamboozled. They told Andy they did not get the goods, but then told him not to bother coming around any more—they were through. Yikes! In one fell swoop, Somerset had gone from being swift deliverers of orders to slow, unreliable duds. 

“We hit $36 million in sales with $8.5 million EBITDA (see glossary) but our debt was at $15 million and for the first time, we stressed about breaking covenants. We got a valuation of $15 million and, with reluctance, we decided to go with a private equity investment of $21 million.”

In hindsight, Andy says getting private equity was good for the owners’ motivation. It took the edge off of the worry about money and retirement. “With private equity buying part ownership, we were allowed to take a large chunk out for ourselves straight away but still retain control. I had been working very hard and it was good to get $6 million out for the founder and owners.” 

The money meant Somerset could pay off their debt straight away and still have $4 million to make acquisitions. Andy says, “With that extra cash, we set up an office in Chicago, which has turned out to be the vital springboard into the American market, taking Somerset to the next level. We’ve had a bad year in there, but we did not have to worry about the business blowing up. The peace of mind meant we could focus on buttoning down the hatches to the storm and finding a new way forward.”

The private equity partners proved to be great sounding boards when Somerset were making acquisitions. The investors were more aggressive in wanting the growth but respected Somerset’s decision to step away from some identified targets.

“Also, when we nearly lost a key person,” Andy adds, “the investors did bring him around and get him to stay.”

Andy says, “When you are an entrepreneur working your butt off, it is great to get that cash pay out as well as have cash to grow the business. With private equity you get the best of both worlds—the cash liquidity without the rigorous scrutiny of the public market.”

Not every company can go public as this is an intense process and you may not get the necessary tick marks next to your chart, i.e.: 

• you are making enough money

• you are profitable

• you have a strong growth curve for your revenues

• you have a decent management team

• you are a good size

Andy says, “At the time of the private equity deal, we were too small. With private equity investors, we got to retain control and we got liquidity. Private equity took us back from the brink with risky debt and looming covenants. They were the stepping stone to getting big enough until in 2005, Somerset did our initial public offering (IPO). Selling those secondary shares was sweet, too.”

As Andy Burgess stood on the stage and let the applause of the audience sweep over him, it struck him how far Somerset Entertainment had come and what a ride it had been so far. 

Uncovering Financing Opportunities for Your Business

Financing Your Business is Easier than You Think

It’s a strange phenomenon that people who have the courage to run a business often do not realize that they also have the power to attract a whole range of financial options. And I don’t mean the soul-crushing bank loans from yesteryear. 

(This is an excerpt from my book Money Magnet published by John Wiley & Sons Publishing)

If you are the owner or CEO of a business, congratulations. I am thrilled to have your attention. Using the information in this book will guide you to the money you deserve for having the gumption (some might say “craziness”) to take your kernel of an idea and grow it. Perhaps right now your business is a little sapling or maybe you’ve got yourself a fine, mature oak. However large or small the plant, wouldn’t you agree that it needs a reassuringly continuous flow of water to survive? Every business, similarly, needs a flow of cash to keep going. Did you know that today, attracting investors is astonishingly within reach of all but a few businesses?  

Money is available to more companies

Here’s a little secret about money: it’s uncomfortable.  

Most business owners believe that their company does not make enough cash— even when revenues soar up in peaks as high as the Rockies. There is also a belief that money is not something to discuss with others. Add to this the embarrassing discomfort owners have of inviting someone to take a look under the hood of their company and provide a diagnosis of their finances. Yet these same owners are scared out of their minds of being beaten to the customer by brash new competitors (bolstered up by newly available investor money). 

Yet the world is getting flat, or as Roger Martin, Dean of Rotman School of Management, says—spiky—and your business can get crushed by a foreign company with twenty Sanjays for their one Bob or Mary.

If producing technology, how can owners make sure their product gets to the market fast enough? If they sell a service, how can they come up with fresh ways to bring back fickle clients? If rooted in manufacturing, how can they set up a plant outside of North America as every consultant seems to be urging with all the Wisdom of Solomon? Let’s face it—this new competition from other countries clearly needs to be counteracted by Canadian companies.

Money is needed by a range of businesses

Now, business owners, like cars, come in all sizes and models: There are young founders hammering away at their keyboards on weekends, others with their prototype bits and pieces scattered across the garage where their spouse’s car ought to be parked. Then there are those owners who have been at it a while with good revenues but costs hoovering up the cash flow. And let’s not forget those forty-year-olds in family businesses who are chomping at the bit to take over from Pops but wondering how on earth to buy him out. Money is required to take businesses to the next level.

On the home stretch of business ownership, there are those 50-ish and 60-something CEOs out there, increasingly aware that even the Rolling Stones are getting closer to converting their tax-sheltered savings into annuities. They are growing vaguely uneasy with all the talk of thousands of companies coming up to the sell point as the baby-boomer owners prepare to retire. Much of this transfer of assets will involve deals of $25 million or less.

Oodles of magazine articles urge owners to “Get serious about succession planning” or “How will you get money out of your business?” or “Sell your business because retirement is just over the hill” (excuse the pun). Many are downright scared: Who is going to buy their business? Boomer business owners are berating themselves for not selling their companies sooner, for overshadowing and stunting Junior’s growth, or for not better developing potential successors’ management skills. How will they ever cash out to enjoy those dream golden years—golf in Arizona, trips to visit the grandkids, that special house by the lake? 

Probably, you too have woken up at 3 a.m. with a soul wrenching experience where you awoke depressed and consumed by the gloomy thought that your business is asset rich but cash poor. How will you transfer value out to your retirement fund? 

When both profits and the exit door become harder to find, it’s not surprising if your confidence and the passion you once felt for your business begins to ebb away.

ICD Event Takeaways: Sustainability and Climate Change Bring Risk and Opportunity

ESG: the risks and opportunities

“We will innovate our way out.” - Nicole Rycroft, Canopy.

I had the honour of co-hosting our ICD April 7th event: Sustainability and Climate Change Bring Risk and Opportunity, and there were some strong, action-based takeaways I’d like to share with you.

1. Be front of the pack. As a leader in our field, we have an opportunity to incentivize innovation and risk-taking in the direction of next generation solutions.

2. Companies who implement ESG strategies are seeing significant financial returns, turning once-risky environmental investing into a mainstream opportunity.

3. A pivot to new market realities for investors means an opportunity to do good for themselves and their investors, optimizing employment and answering to both stakeholders and shareholders simultaneously, an essential aspect of the circular economy.

A special thank you to Geoff Smith, President & Chief Executive Officer, EllisDon, Nicole Rycroft, Founder and Executive Director, Canopy, and Kelly Drennan, Founder and Executive Director, Fashion Takes Action, for presenting. Thank you to Michelle Quintyn, Jacoline Loewen,, Gerard Seijts, Ginny Dybenko, Harry Joosten, Jane Armstrong, Jeff Young, ICD Southwestern Ontario Chapter , Peter Friedmann,
Richard McCammon, Susan Taves, Tony LaMantia, Warren Granger and to everyone who joined our event.

For anyone interested or who missed our event, I’d be happy to chat more about the topics we covered.