Wednesday, May 20, 2015

Creating Value and Differentiation Through Innovation

Many professional snow companies find it difficult to differentiate themselves from their competitors and communicate value to their prospective customers. Innovation is a two-fer, in that it can do both. And yet, innovation is one of those business buzz-words that seem to get thrown around as much as snow and slush in the winter!

I often hear business development folks use it in their sales pitch to describe their snow management company [often without any real proof to make it credible.]  I also see it in a lot of marketing communications and web-sites.  It is becoming [what I call] one of those “ad nausea business buzz-words” like proactive, think outside the box or win-win.  While all of these buzzisms represent important elements of business, when used without any real supporting proof or meaningful benefits to stakeholders, they lose their credibility, relevance and importance.

I don’t want innovation to go by the wayside of overused and abused business nomenclature, as it possesses way too much value.  Innovation at its simplest is the introduction of something new generated by an idea[s], whether it be a creating a smarter site-pattern for more removing snow more efficiently, or creating a more effective process to alert and dispatch your service providers.
Innovation at its best creates value, and lots of it.  Most people though often associate innovation with technology related to products or services, but that’s only a fraction of its worth. Don’t get me wrong, technological innovation in products and equipment is vital for business success. Simply take a look at the innovations embedded into smart [or as I call them brilliant] phones. If somebody told you a few years ago that you’d be able to photograph a site, do payroll, perform sight measurements, route and schedule crews, invoice, deposit checks, conduct training, or create a video via your phone, would you have believed them? Take a look at Apple with its market capitalization of almost $600 Billion, with a capital B. What’s their mantra and brand? THINK DIFFERENT and it’s all based on innovation. For those of you who haven’t read the Steve Jobs autobiography, it’s a testament to innovation. 

Innovation at its heart is about thinking and doing things differently. Innovation was at the heart of de-icers, snow-blowers, extendible plows with wings, multi-functional compact utility loaders that push and remove snow [they remind me of a “snow Swiss Army knife.  These innovations reduced labor, time and costs, while creating greater efficiencies and safety in the field. They created value for everybody.  Research shows that companies that embed innovation into their culture are almost three times as profitable as their competitors. The great news is that you don’t have to be a Steve Jobs, or an Apple, in order to develop, execute and leverage innovation. You simply need to make certain that you build innovation into your culture and business model, so that the entire team knows that it’s part of their responsibility. In other words, innovation needs to become an ongoing strategic focus and process that needs to be managed, measured and rewarded.

Innovation should be nurtured and recognized at every level within your organization, as well as with external stakeholders. Sometimes customers, suppliers and alliances are some of your best innovators. Are your plow-operators and mechanics encouraged to enhance their existing processes, or brainstorm ways to reduce equipment damage, or identify equipment that can reduce cost, increase safety and save time? Make innovation a direct role and responsibility for your team especially around resolving company pain points.

Does your management team have any innovative strategic insights that could change your business model thereby creating a competitive advantage for the company?  Think Dell who had the insights to understand that customers really wanted their laptops custom-built.  Dell created the “mass customization” model for laptops and made “special ordered” computers a successful business model that took the industry by storm. Research shows that high-performing companies consistently combine new technologies, products and services with new business processes and models to go to market.

Changing your business model requires looking at your existing value proposition, meaning what you sell and how you go to market, along with your supply chain, target markets and your processes. For example, a change in your value proposition may include adding new services and products to your portfolio such as snow hauling and melting, or providing environmental de-icing agents, and installing shrubs and grasses as natural snow fences.

By objectively reviewing your existing supply chain, which is critical to your success, and inviting new players to the table with different products, capabilities and business models offer a host of opportunities for innovation to occur. And don’t forget to take a look at your target market. For example those companies who have built a green business model may want to target the LOHAS [lifestyle of health and sustainability] group and BOOMER’s [those born 1946-1964.]

Innovation is an excellent way to differentiate yourself, create a competitive advantage, retain and attract the industry’s best talent while creating value for all of your stakeholders. So what are you waiting for the sky’s the limit!

Tuesday, May 12, 2015

Bargain Hunting

Surprisingly in today’s uneven and uncertain economic climate, two recent reports show that mergers and acquisitions (M&A) are on the upswing, with most of the action involving smaller deals. Obviously, not every snow removal and ice management professional is in a position to buy, but weak earnings and declining market share create great buying opportunities for good managers.

For many small business owners/operators, mergers are a way of cutting overhead costs, increasing efficiency or battling a larger competitor. Frequently, M&As are based on the belief that a profitable, better-managed business can get more out of the assets of an under-performing business than was possible under its current ownership.

Admittedly, most small snow removal contractors and businesses tend to grow “organically,” that is by slowly adding customers/clients, employees, new services or products, and equipment. Others grow by merging with or acquiring another firm –- or by being acquired. In fact, an economic downturn often creates greater opportunities for buyers to take advantage of depressed business valuations, providing an opportune moment to do a deal.

Mergers and acquisitions
Mergers and acquisitions typically take one of two forms: an “acquisition,” in which a snow removal business folds a new company into its existing operations (or vice versa, if the business is being acquired), or a “merger” where both businesses are typically dissolved and a new business entity formed or created.

A merger is a tool used by many businesses to expand operations, often aiming at an increase in long-term profitability. Usually, a merger occurs on a consensual basis where the owners/operators/management from the target business helps those from the purchaser to ensure that the deal is beneficial and profitable for both parties.

Acquisitions can also happen through a so-called “hostile” takeover by purchasing the majority of outstanding shares of a business in the open market against the wishes of the target company’s management and/or directors. This approach is, however, rare among smaller, privately-held businesses.

Buying a going business
In most cases, buying an existing business is less risky than starting from scratch. When a business is purchased, the target is usually already generating cash flow and profits. After all, to be acquired it has to have an established customer base and reputation as well as employees who are familiar with all aspects of the operation.

On the downside, buying a business is often more costly than starting from scratch. Fortunately, it is often easier to get financing to buy a business than funding to start a new one. Bankers and investors are more comfortable dealing with a business that has a proven track record.

Paying for it all
There are a number of strategies for financing mergers or acquisitions:

Use the seller’s assets. Finance companies, factors (companies that buy accounts receivable), and some investors will lend money based on purchase orders. Factors, finance companies and banks will lend money on receivables. Finance companies and banks often lend money on inventory. Equipment can also be sold, and then leased back from equipment leasing companies.

Joint venture. Where an acquisition may be out of reach for one snow removal contractor, buying in conjunction with another party may make the acquisition affordable. To find a likely partner, ask the seller for a list of those who were interested in the business, but did not have enough money to buy.

Employee stock ownership plans (ESOPs). ESOPs offer a way to get capital immediately by selling stock in the business to employees. By selling only non-voting shares of stock, control can be maintained; imagine using an ESOP to acquire a business for as little as 10 percent of its purchase price?

Assume liabilities or decline receivables. Reduce the sales price by assuming the business’s liabilities or having the seller retain the receivables.

Issues with tax issues
Unfortunately, buyers and sellers who fail to address the tax issues of a merger or acquisition risk leaving money on the table. Because of its significant impact on the bottom line of any M&A, formulating the right tax-efficient strategy plays an important role in the success of any deal.

No two deals are the same,. Every M&A transaction begins with whether it is taxable or tax-deferred. In a tax-deferred transaction, the seller gets a substantial part, if not all, of its proceeds in the form of stock in the buyer’s business. Because the seller continues to hold an interest in the surviving business – without realizing a gain – there are no tax consequences until the stock is sold. This alternative makes sense for sellers who don’t need immediate liquidity provided they think the buyer’s shares are a good long-term investment.

A so-called “qualified reorganization” is tax-free if it falls within the transactions outlined in the tax rules:

  • A Type A reorganization is a merger or consolidation under state or federal corporation laws.
  • A Type B reorganization is the acquisition by one corporation of the stock of another corporation in exchange solely for all, or part of its own or its parent’s voting stock. The acquiring corporation generally controls the other corporation after the acquisition.
  • A Type C reorganization involves the acquisition by one corporation of substantially all of the properties of another corporation, in exchange solely for all or a part of its own controlling parent’s voting stock, followed by the acquired corporation’s distribution of its property under a reorganization plan.
  • Type D reorganizations involve a transfer by an incorporated snow removal business of all or a part of its assets to another corporation where, immediately after the transfer, the transferor, or one or more of its shareholders is in control of the corporation to which the assets were transferred.
  • Type E reorganizations would be better labeled as a “recapitalization.”
  • A Type F reorganization is a mere change in identity, form or place of organization of one corporation; while Type G reorganizations refer to a transfer by a corporation in bankruptcy of all or part of its assets to another corporation on tax-free basis.

Taxable but flexible
In a taxable M&A transaction, where the government takes its cut in the first year, the most critical factors influencing the negotiations are:

  • What the buyer is purchasing – assets versus stock;
  • The legal structure of the seller

In most M&A transactions, the buyer either purchases the seller’s assets (after which the seller becomes a shell and is liquidated) or acquires stock. From a tax standpoint, buyers benefit by assigning more of the purchase price to fast-depreciating assets such as inventory and equipment – while allocation of the purchase price to longer-term assets such as land, generally favors sellers.

In general, S corporations and limited liability companies (LLCs) are the most tax-efficient when a business is up for sale. Since the tax liability that a regular ‘C’ corporation incurs on an asset sale is often subjected to the “double tax” (taxed both at the corporate level and again when the proceeds are distributed, they are taxed, at the shareholder level), snow removal contractors planning to put their operation on the market should at least consider converting to S corporation status.

Taxes and more taxes
There are other tax-related issues that will have to be addressed by both buyers and sellers. State and local governments, for example, assess income, sales, transfer and property taxes that vary considerably – particularly if one or both parties do business in multiple states. Above all, don’t forget that a merger or acquisition mainly for tax benefits is a no-no, easily and legitimately undone by the IRS.

Acquiring control of another business to evade or avoid income taxes by securing the benefits of a deduction, credit or other allowance also means the deduction, credit, or other allowance may be lost. The tax rules explicitly authorize the IRS to deny acquiring corporations, carryovers and other tax benefits including losses, acquired as part of the acquisition of another corporation.

Even if it is not a deal breaker, the tax aspects of an M&A transaction can be significant enough to make or break a deal helping sellers maximize their after-tax proceeds. Buyers can minimize their costs, and better position the new company emerging from the deal for success.

Yet another study recently revealed large numbers of businesses are looking to sell or spin-off businesses during the next three years. In fact, many of these deals are expected to involve businesses that the sellers attempted to get rid of before, but were never sold.

Now may be an excellent time for every well-managed, snow and ice management contractor and ice management professional to think about acquiring another business for increased profits, lower costs or strategic growth. Still others are thinking about the many benefits of merging with another operation, perhaps even a competitor. Obviously, professional tax advice is almost, always necessary.

Mark Battersy is an Ardmore, Pa.-based finance writer and frequent Snow Magazine contributor.

Wednesday, May 6, 2015

Become a Sales Leader

Time is one of the most precious resources we possess, and it can either a friend or enemy. We can waste it, or leverage and manage it. Unfortunately, sales people in the snow industry waste it chasing unqualified sales leads.

You’ve undoubtedly heard the saying that “sales” is a numbers game. While I won’t argue with that, I’d stress the importance of which numbers you should be analyzing and measuring, as well as emphasizing the need to have a process in place whereby you’re always improving on those numbers. For example, many sales managers want your pipeline bursting with leads and associated revenue dollars. It’s quality, not quantity, which is important and impactful. One critical sales metric is the win ratio and many factors can affect that number. The goal is simple – always be striving to increase your win ratio. A key factor to improve this ratio is increasing the quality of your leads. Why? Better leads mean better business and profits, and quality leads are mission-critical in becoming a sales leader or laggard.

Creating a process that will generate quality leads prompts many questions including: who’s responsible for generating leads; what methods and mediums do you use for generating leads; which methods are most successful; and do you have a standard definition of a qualified lead.

A great deal of sales failure and disappointing win ratios are attributed to companies that don’t share a standard definition of a qualified lead. The inability to achieve sales success is further exasperated by the absence of a market driven sales plan that identifies who is responsible for generating leads. While marketing and sales both share this responsibility, shifting more of the burden to marketing will increase your win ratio as it allows sales people more time to sell.

Taking time away from selling to generate leads significantly cuts into sales productivity. There is generally a disconnect between marketing and sales when it comes to lead generation. And yet, there is an opportunity for huge returns when these two groups are aligned on the definition of a quality lead, and which tactics should be pursued. When a company identifies and agrees upon which targets and tactics are the best to pursue, and prioritizes those opportunities, only then will their win rates increase. There’s no right or wrong when it comes to defining your standard definition, but what is important is agreeing on a standard definition.

We do have evidence of leading indicators and attributes that determine a qualified lead. When a prospect has an identified need aligned with your service offering and your team’s capabilities, that would indicate this prospect may be qualified and is an opportunity you’d want to pursue. Next, is there an established budget for your service? If the dollars don’t add up, don’t pursue it.

Time is also a key qualifier as your sales strategy should have specific revenue goals with associated timelines. There are several components. First is the time it takes a sales person to receive and follow-up on an initial inquiry that has been generated by some marketing vehicle. Another timing factor includes the sales cycle, which is the time (the full circle) it takes the prospect to identify, interview and award a contract to a snow professional. Is this timeframe aligned with your average sales cycle time? And lastly, there should be some indicator of intent and time to engage and execute. Time will help you determine if a prospect is qualified, and will also help prioritize your sales efforts. Remember, time is money intelligently or foolishly spent. Sit down with your team and discuss what it costs your company in terms of time, money and reputation by pursuing unqualified leads.

Having an agreed upon standard definition of a qualified lead, along with a sales process who identifies the lead and moves it into your sales pipeline, will increase your sales team’s confidence, win ratios, revenues and marketshare. This will also decrease your overall marketing costs, while establishing you as a sales leader in your market. So what are you waiting for? Go lead by example.

Judy Guido is chairwoman of Guido and Associates, a leading industry consulting firm, and a frequent Snow Magazine contributor.