Expanding and Scaling Your Company: The Growth Interim’s Success Stages

As an executive who has spent his career growing companies, taking companies public, and successfully selling businesses, Charlie Shalvoy says the first thing he does when he parachutes into a company is begin with an assessment. Whether the company is venture-capital backed or private, or in manufacturing, energy, semiconductors, or industrial equipment, figuring out the current state of operations is always the first step. Charlie divides the stages an interim executive goes through in taking action in a new company into four phases:

Phase 1: Taking Hold (90 Days)

When a company seeks to expand into new markets or scale operations to support current and future growth, Charlie takes on a role ranging from Interim CEO to Executive Chairman, where he coaches and serves alongside the CEO and management team. He describes that in the taking hold phase, an interim executive identifies what’s broken – even fast growing companies need repairs. What is getting in the way? What is causing distress?

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The Strategic CFO

“How many businesses find their data to be a complete mess?” Christie Kelly, former CFO of JLL Real Estate questioned as she and a panel of high-profile CFOs discussed the changing landscape for financial leaders at an event held by the National Association of Corporate Directors.

In today’s world every business now seems to be in the game of being a technology business. That means that a new importance is placed on data, especially for CFOs.

“How do we transition to turn it (data) into insights, and how does that change finance to have more technology, process, and Six Sigma?” Kelly said.

The role of the CFO has evolved, due to the accelerated pace of the digital age. How? A strategic CFO drives transformational change. A CFO must not only understand a business from start to finish to provide financial excellence, but also must predict what is coming from a strategic standpoint and be ready to evolve.

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Family Offices Use Interim CFOs to Improve Operations and Make Sound Investments

There’s no question that the number of family offices is on the rise. A recent study by Campden Research revealed that there are over 5,300 family offices worldwide. About 2,200 of the family offices are in North America. About 67% of family offices that exist today were established after 2000.

There aren’t hard and fast rules on what a modern-day family office looks like. A single family office typically has over $150 million in private wealth and is one family. In recent years, multi-family offices have increased. In multi-family offices, families — related or not —  have shared interests, investment goals, infrastructure needs, or operational requirements. By coming together, they save resources. This way family offices can focus more energy on portfolio growth and increasing net profit margins.

Over the past decade, the way family offices invest has evolved. In the past, family offices stayed in their comfort zone, by acquiring operating businesses in their business sector.

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It’s not uncommon for private equity portfolio companies to double or even triple growth thanks to merger or acquisition. Albeit positive, rapid growth brings new operational challenges that can stop the upward momentum in its tracks. Interim executives bring the expertise needed to enable growth on a massive scale.

“Sometimes a business will start with $40 million in sales, and through acquisition will be two or three times that size. Often that creates an environment where you need to add to the management team, whether that be the CFO or the CEO,” said Forest Wester, a Partner at Trivest Partners that leverages interim executives to enable growth.

Private equity funds use interim executives in a variety of scenarios. However, these scenarios are typically problems that need to be solved such as the abrupt departure of a CEO.

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M&A 101: What’s the Difference Between a Financial Buyer and a Strategic Buyer?

The world of mergers and acquisitions can be complex for owners focused on building their companies.

We’re often asked by owners about their options to exit and sell the company. Often, work needs to be done to prepare – in advance of any sale process – to ensure maximum value is realized. Owners may opt to bring in an outside perspective like an interim executive to provide an operational roadmap to improve operations and package the company for eventual sale. This process, however, typically begins with two types of targets in mind:

Strategic buyers (Strategics) are companies who are already operating in the field/industry where acquiring your business will be complementary to their business, expand their customer base, or give them a competitive advantage.

Financial buyers include private equity funds, family offices, and individual investors who provide their own equity funding and borrowing to acquire businesses as a path to future gains.

Let’s dive in to the difference between strategic buyers and financial buyers:

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Scaling a Business Fast Is Hard for Entrepreneurs

I was having a conversation with company founders in a healthcare startup who made the comment: “we’re new to being entrepreneurs.”

That was their opening for free advice. It’s hard building and scaling a business when most startups fail or have a tough time and that’s not celebrated enough. Instead we just marvel at the likes of Mark Zuckerberg and aspire to be like Uber, Facebook, Google.

The truth is that most every new businesses – it’s a slog. A grind. A tough battle at some point in their existence, if not in fact for many years. Steve Ballmer of Microsoft had a phrase for this: the long middle. He said its fairly easy to be creative, think up a brilliant new product, and decide to charge forward. Then comes the middle: the long slog.

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Private Equity Fund In Hot Water Deploys Interim Team

What do you do when your fund does a great job buying 5 divisions of a big publishing company spinning off assets, only to find one of the divisions starts going sideways?

First, you give the division some time to right the ship on their own.

Unfortunately, for one multi-billion dollar private equity fund, this strategy didn’t work… and the fund gave the CEO four years to get it right.

That’s a lot of patience.

Eventually, it came time to make a change, which the managing partner was dreading.

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The overriding, ever present recurring theme of PE fund managers is dealflow. What keeps a PE fund manager up at night? Dealflow. What gets a them up in the morning? More deals. What drives them to stay connected and answer the phone while on vacation? That would be more deals.

And dealflow’s brother is price. As dealflow becomes more pressured and harder to come by, prices of companies go up. And seemingly everything gets shopped since fund after fund are grabbing for the same opportunities.

Proprietary access to deals is the holy grail. Into this challenge, how does a professional investor win, if you can’t even get to the start line?

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The Six Times PE Funds Use Interim Executives

Many private equity funds hear the words “interim executive” and think the only application is turnaround or short-term fill-in. But for PE funds seeking a great return, they look to interims for their unique abilities to build and transform companies.

Here are six major use cases for interim executives in PE-owned portfolio companies:

Interim Executives in Diligence
Most funds hope to spread their wings – work beyond industries where they’ve already had success, by looking at new industries where acquisitions may cost less and produce higher returns. The further afield they go, the more they need expert leadership removed from prior operating teams.

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Selling in a Few Years? Start Packaging Your Company Now

According to a Harvard Business Review report, the failure rate for mergers and acquisitions sits between 70 and 90%. Even before the deal closes, it’s not uncommon for deals to unravel.

If the odds can be overwhelmingly negative, what can you do to increase your chance of success if you are looking to sell your business?

Prepare.

Don’t wait for the M&A process to begin to get your team in gear – that’s a sure fire way to fail.

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