Jim Stoynoff's blog

What We Learned From Our Colleagues

Synthesis Solutions is proud to announce that we have just completed our first in an ongoing series of LinkedIn conversations on leadership. This initial discussion was based on The Five Practices of Exemplary Leadership from the book The Leadership Challenge by James M. Kouzes, Barry Z. Posner.

Great Conversations: Leadership

Beginning in 2012 Synthesis Solutions is tapping into the world of experts on LinkedIn and beyond to create Great Conversations around specific business topics, which are also being published in our Synergies Blog/Bulletin . We inaugurated the series by creating a robust conversation of Leadership Principles based on "The Five Practices of Exemplary Leadership" from the book "The Leadership Challenge" by James M. Kouzes, Barry Z. Posner.

Beating Commoditization

While there are encouraging signs of better days to come for some industries, the recession continues to take its toll as competing companies slash prices in order to survive. Especially hard hit are those that didn’t crack the commoditization code before the economic downturn. Industries with a low barrier to entry are even more prone to competitive price pressure because buyers see no difference between providers except price.

Looking Beyond Your Immediate Staffing Needs

Rapid growth can feel like you're caught in a storm, that is why it's important to read the forecast in order to be properly prepared.

When firms experience rapid growth they generally find themselves adding staff quickly, and with less diligence, in order to get their immediate needs met ASAP. The long term consequences of this knee-jerk reaction can be very costly, both in terms of hard dollars as well as morale. This is especially true for smaller and more vulnerable firms with limited resources. Below are just a few of the negative consequences resulting from this practice.

After reading the following please share your comments and any strategies that have helped you mitigate these or related challenges.

If you are thinking of selling your business it is essential to objectively assess its performance in all key functional areas, through the eyes of a strategic or financial buyer.

Prior to the credit crunch and the resulting shrinkage of investment capital, a significant number of lower market middle businesses were being sold at higher multiples of adjusted earnings (EBITDA) than what can be expected now. Many of these were owned by baby boomers that notably are transitioning out of their businesses at an earlier age, a trend expected to continue through this decade. Although the recovery is gaining traction and investment climate is warming, the market will not return to pre-crunch multiples, which were for the most part inflated. Investors will be more conservative in their evaluations of acquisition targets. Beyond financial performance they will be digging deeper into management and operational performance. If you are thinking of selling your business it is essential to objectively assess its performance in all key functional areas, through the eyes of a strategic or financial buyer. How your firm ranks against buyer expectations can have significant positive or negative or impact on what a buyer will pay for the business.

Maximizing the value of your business begins with an impartial assessment of its performance relative to a buyer’s due diligence focus. Beyond financial performance, here are just some of the key areas you need to evaluate qualitatively and measure quantitatively (where possible) along with some of the critical questions a buyer will be asking and their implications.

Jim Stoynoff, President, Synthesis Solutions LLC

Much has happened in the commercial credit markets as a result of the Great Recession, but it comes as no surprise given the conditions that existed before the credit crunch.

Background

Prior to 2000 there were fewer banks in metro areas like Chicago and their lending criteria were typically conservative. Borrowers had fewer choices and less negotiating leverage when seeking business financing. What followed was a rapid increase in the number of bank branches and the entry of many new players to the market. Case in point, there are now 128 commercial banks and 1547 branches in the Chicago land area (FDIC report, June 30, 2010). As competition increased a growing number of banks began to relax their lending criteria in order to capture more market share.

For example the traditional 5 C’s of credit normally required to obtain a loan were often not fully adhered to:

• Character (integrity)
• Capacity (sufficient cash flow to service the obligation)
• Capital (net worth)
• Collateral (assets to secure the debt)
• Conditions (of the borrower and the overall economy)

Greater availability of liberal credit gave borrowers, and even those of marginal credit worthiness, more options to choose from. As the scales tipped in their favor they were able to negotiate more liberal terms with willing lenders. Once on board with a bank if a borrower did not fulfill one or more of the loan agreement covenants (referred to as “tripping a covenant”), lenders often looked the other way, lest the customer go to a competing bank willing to take the risk.

Banks had essentially abandoned conservative lending practices, giving rise to a wild west mentality that would allow riskier lending in order to capture and retain more customers. It was inevitable that these practices would lead to severe consequences, as we are now experiencing.