Losing Michael will be a big change. Anyone who knows him knows that there is no replacement for his infectious enthusiasm, endless energy and great ideas. Our clients and I will miss that. But I’m happy to report that we were actually more prepared for this transition than you might think.

That’s what makes this a powerful moment for our company. Over the past ten years, we built a body of intangible capital that made Trek more than just two consultants. Beyond this human capital, we developed:

• Structural Capital - Including our IC Value Drivers measurement system, Trek to Success change management program, Intangible Capital book and years of exit planning articles, intangible capital articles and newsletters (notice that this is Issue # 95).
• Relationship Capital - Trek co-founded the Exit Planning Exchange which now has five chapters on the East Coast of the U.S., the IC Knowledge Center which has 350+ members from around the world (would love to have you join too!). The firm also has a strong presence on social media including Twitter profiles for ourIntangible Capital and Exit Planning networks.
• Strategic Capital - To date, our business has used a classic consulting model based on fixed price projects. We have been exploring a number of alternatives to add on more scalable product-based revenue sources in the coming years.

As consultants to private business owners, we often ask the question, “Can your business survive without you?” It’s the ultimate test, a significant differentiator that translates into increased exit value for a business. The key is always maintaining a balance between these critical intangible capital components: human, relationship, structural and strategic capital. Such a balance brings sustainability as well as to innovation, performance and value.

I’m excited to continue to build Trek with your help. I plan to continue this newsletter and our various blogs, websites and communities. I hope that you will continue to share our firm’s Trek to Success.

A business plan is important any time you want to communicate in a meaningful way with external stakeholders. It’s about more than your strategy. It’s a formal presentation of your company, its market opportunity, how and why you are in a position to hit the cover off the ball in the future.

What’s your story? Do you want to:

• Get financing like the service company that changed its bank or the software company that got its first bank line?
• Raise capital like the high-end consulting firm that wanted to expand overseas?
• Develop a strategic partnership like the integrator that wanted to create a deeper relationship with one of the platform companies in its industry?
• Rally the troops like the firm that now uses (most of) its business plan as part of its on-boarding process.
• Sell at a premium like the software company that responded to an acquisition inquiry with a knock-your-socks off plan that closed the deal.

The twist that we recommend on the standard business plan is to include measures of your intangibles. Since 80% of the value of the average company today is intangible, making intangibles visible and concrete makes the entire story stronger and more compelling. Here’s one way we do that.

Are you ready to stir up some action, raise some money, fuel some growth? It may be time to package your story in a compelling business plan.

At one point, one of the entrepreneur panelists said, “I bought or started each of my businesses with the end in mind, with an eye toward selling.” This is also why you hear the term entrepreneur associated with venture capitalists. When a v.c. invests in a company, they want to know the exit for the liquidity event – usually a sale to a strategic investor or to another financial investor, or an I.P.O, within three to seven years of the investment.

But that doesn’t describe a lot of business owners I know. Most business owners, I believe, think longer-term. The business becomes part of his or her identity. The focus is on building the business, employing an ever-increasing number of workers, developing a paternalistic image and possibly passing the business along to family, but generally not thinking of a specific deadline to sell.

I think that this distinction is important for advisors who are advising owners – are they business owners or entrepreneurs?

What do you think? Is there a difference? What does that mean for them and for their advisors? Please share your thoughts.

Moneyball follows Billy Beane (Brad Pitt in the movie), general manager of the small market Oakland A’s, as he looks for a

new business model in 2003 that would let him compete with the big market teams (hello, Yankees and Red Sox).

That means that it’s a movie about reinventing a business to adapt to evolving business conditions.  And challenging old beliefs around stolen bases, home runs, sacrifice bunts, and strikeouts with a new way of thinking around the importance of getting on base.

Beane is helped in his quest by Peter Brand,  a fictional creation based on Yale grad and numbers wonk Paul diPodesta who currently works with the Mets (played really well in a deadpan manner by Jonah Hill). Their methodologies helped them find players that were undervalued by mainstream baseball and put together a team that surprised everyone.

It all works on a lot of levels and it’s a really good movie (Siskel & Ebert would’ve given it two thumbs way up).

Go see it.  I mean it.  Then look at your business and your clients’ businesses through a different lens.

The great aspect of this event is that the moderator will kick off by asking, “What would you do if you, as the business owner, had six months’ notice that you had to sell immediately (maybe because you were going to die?)?”  What a great perspective! (aside from the dying part…)

Here’s what I think:

Human Capital:

· Are there successors to take over for you in your company?

· Do these successors have employment contracts that will make them want to stay with the company?

Structural Capital:

· Do you have a will?

· Are all the key processes in your operation written down?

Relationship Capital:

· Are your customer relationships secured with long-term contracts?

Strategic Capital:

· Do you have life insurance?

· Is your family cared for financially?

· Do you know the value of your company?

· Are you prepared from a tax angle?

· Is your company prepared and attractive for potential acquirers?

· Could your company survive a rigorous due diligence process?

I’m sure there will be many great ideas and recommendations from the other panelists and in questions from the audience. I’ll be taking notes along with everyone else attending.

Although executive search firms may not like this approach because they are shut out of the process, the company finds that this approach to finding new employees is beneficial for several reasons. In addition to potentially landing a new talented employee, there is also a nurturing relationship that will continue to ensure the new arrival’s success. Another reason for the success is that the referring employees have a vested interest in furthering the company’s success. A bad recommendation into a small company can cause considerable damage.

The buzz during the company’s two-day meeting was notable. Promotions, hiring, new product development, improvements in service leading to greater customer satisfaction – this is all leading to a very positive outlook for a company that has survived the deepest recession since the Great Depression and is growing stronger.

The moment is ripe for this company-and probably for yours- to start hiring again. Whether you use a search firm or internal referrals, hire carefully for long-term success.

1.  Open conversations with many lenders.  If you need a different bank, they will have the notes to say that you have been talking and didn’t just rush through the door in desperation

2.  Take a look at your capital structure.  How much senior debt will a bank lend you?  How will you make up the difference?  Mezzanine debt, a subordinated loan or more equity?  It’s going to cost you more, but if you need financing, then you have to find it.

3.  Get your financial statements in good condition.  A tax return is inadequate.  Your CPA should probably prepare at least a compilation.  A review or full audit is better.

4.  Make your credit request stronger.  Provide everything a bank wants at the same time – company history, your own analysis of recent financial statements, competition, the future (your exit strategy)?  The easier you make the request on the bank officer, the more favorably you and your request will be viewed.   A solid request will also be a good drill for your own strategy.

5.  Be ready to answer the basic questions every lender is trained to ask on for a commercial loan request from a corporate borrower:

• What will you use the money for (Use of proceeds)
• How will you repay it? – (Source of repayment)
• How will repay it if that doesn’t work? (Fallback)

6.  Tell your intangible story better.  Most businesses these days do not have lots of tangible assets to secure loans.  And the lender, no matter what the interest rate, wants to know your business will be around to repay the loan (the answer to question #2 above).    Your story will likely be around your intangibles:  relationship capital, structural capital, human capital and strategic capital.  It should also include fallback (answer to question #3).

We are finding good reception with bankers for specific, data-driven descriptions of intangibles. 80% of the value of the average company today is intangible. Most bankers and businesspeople understand this intuitively but they often don’t have the information to tie value and intangibles together.

The power instantly increases if you give the same quiz to a sampling of your employees, your customers, your partners and your investors. Who knows you better than these stakeholders? We have always used this approach for strategic projects and recently started using it to help lenders and investors get a deeper understanding of our clients’ businesses. We’d be happy to send you a sample if it would be of interest to you.

Of course, if you want to ignore your intangible capital, you can always take the Accent Quiz. In 13 questions, it will accurately determine where you’re from in the U.S. and where you learned to speak. Of course, you won’t learn anything about what you need to be successful in business these days, but this is an amusing way to kill 10 minutes.

VIBCO has been manufacturing vibrators for nearly 50 years.  In today’s highly competitive environment of low cost labor overseas, VIBCO has found a way to thrive in its segment without moving production off shore.  A number of years ago, the company embraced lean manufacturing whole-heartedly, seeking operating efficiencies at every level of the company.  The passion for lean manufacturing starts with cigar-chewing, Army helmet-wearing Karl Wadensten, VIBCO Vibrators President (who looks like a slimmer Bill Parcells).  The passion extends to the employees assembling each industrial vibrator.  VIBCO welcomes other manufacturers, business students, government officials, and all who are interested to take plant tours and learn how lean manufacturing has permeated the operation.  Each employee on the plant floor speaks with genuine enthusiasm about lean as this change came from employee empowerment after employee training on lean tools and methodologies.

While everyone acknowledges that lean is a constant learning process and that progress can always be made, the results are impressive.  Even in the severe downturn of 2008 and 2009, VIBCO did not have to lay off any workers.  They have increased productivity and focused their whole thought process around the manufacture of these machines so much that Wadensten hosted a daily radio program (www.790business.com) to discuss lean with other lean experts.

Wadensten empowers his employees to speak up when they have an idea of how to make things better.  And they do it to provide better service.  Their goal is to manufacture and ship these industrial vibrators (say, for sand and salt spreaders in the winter or to construction sites year round) in two days.  Lead times were 3-4 weeks in the past and as a result of lean, lead times are now at 1-2 days — a significant differentiator from competition.   These are now built to order as opposed to building a run of 50 at a time and carrying them in inventory.  This means fewer parts to carry in inventory, less space needed for storage, better communications between workers.  Heck, even the mailroom re-organized and relocated to carry fewer boxes and now use color codes to better identify urgency and priorities.

Wadensten must be congratulated for this change.  Why? Employee empowerment is not automatic, even with lean.  Management must give up power in order for employees to be empowered.  This means that management must shift from the “command and control” management style to the coaching and facilitation management style.  It’s a challenge that not all management teams can make.  It is difficult for management to give up power just as it is difficult for employees to accept their new power.  The concepts of lean are very straightforward … it is the behavior change for both management and the employees that make the process a real challenge.

It does mean better cash flow and lower borrowing needs which leads to  lower interest expense and more funds to invest into the business.  Wadensten knows his advantage is in being nimble, providing great service to his customers with live answers to calls for product and delivery help, reaching out to educate with  better ideas to tackle problems in the field, and sharing experiences around best practicing.  This way, they don’t have to compete on price because they’re giving value.  By shipping in two days, VIBCO keeps the competition from China and Brazil at bay and keeps manufacturing  jobs in Rhode Island.

Make no mistake – this is hard work.  Every employee is challenged to perform better, constantly think about improvement.  But this bottom-up empowerment drives process and product innovation, making each worker a vital part of the company’s future.  Each VIBCO employee is asked to identify and correct the “8 Deadly Wastes”:  Overproduction, Waiting, Transport, Over-processing, Inventory, Motion, Defects, and Underutilization.

This company embodies so many of the values that we highlight in Intangible Capital:

• treating people, partners and shared knowledge as the core assets of an enterprise;
• using measurement for learning rather than just as a management weapon;
• beating “low cost” competitors by just being smarter.

It’s a recipe for the future of American business. One I hope you will join us in building, one company at a time.

Part of what makes a family businesses unique could be that they simply have a different set of priorities. While many companies place ahigh value on growth and current profits, family businesses consider other values of high importance. For example, many family businesses consider the value of the family business to the fiber of the family. This business can serve as a source of employment for family members andit can serve as a means of keeping the family connected.

This unique set of priorities can be very productive- allowing a company to really focus on building value for the long term. But it can also cause problems, especially if a skill set is missing within a family and they refuse to go outside for help. Family businesses also have unique challenges compared to traditional business – family tensions anddynamics have a way of spilling over into the business causing fissuresand counterproductive behaviors.

I’ve seen both the positive and negative sides of family businesses. In my opinion, the secret is to not pre-judge a family business based on “traditional” business practices. Rather, start with an open mind andtake the time to understand the business, the family and then their relationship together. It is also vital that you are ready to confront the family when their behavior becomes a problem for the business.

This thinking requires specific training in issues facing family businesses -which is why we have included this in the curriculum at XPX. If it’s done right, a family business has a lot to teach American business people who have lost the ability to think long term.