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I
recently decided that on my next set of business cards
I would change my title from co-founder to translator.
Why? Because, while I did co-found what I know to be the
only investment banking firm focused solely on women owned
and run companies, what I really do all day long is translate.
I translate fabulous marketing plans and sales strategies,
written by Venetians—women—into numbers
that represent investment opportunities to be read by
Martians—men. Often times I find myself
translating the story of the little company that could,
into the dynamic acquisition target for a strong strategic
buyer. Why am I a translator and not just an investment
banker? Let me give you some examples.
Not
long ago, a woman came to me because she wanted to find
an investor to help take her company to the next level.
She had carved out a great niche for herself, and done
much with very little in the way of resources. During
our meeting I discovered that she had no business plan,
no financial projections, had done no research into the
size of her market, or how she stood compared to her competitors
(she claimed she had none), nor could she answer the most
basic of financial questions I put to her:
- What
was her profitability (EBITDA),
-
What percent had she grown that number year over year
(CAGR),
- Who
were her top ten clients,
- What
percent of her sales and profits did each of these clients
contribute?
The
basics.
What
she did have was a great brand name in her market, fabulous
visibility and a genuine desire to continue growing the
company. She did not want to handle the business piece.
As
we talked, I laid out how we, as investment bankers, handle
the process of bringing in investors or strategic partners.
We would start by doing a through job of due diligence,
not merely so that we understood the company inside and
out, but to make sure that nothing would come up down
the road that we would not be prepared to address. We
would do valuation work so that we could easily demonstrate
why we thought the company was worth what was claimed.
We would run a process—in essence a horse race—to
get the best candidates to the table, and let them compete
for the property. And then we would negotiate the terms
of the deal so that they favored our client. How would
we be paid? We would take a retainer on the front end
with the bulk of our fee based on our success.
She
wanted our help, but despite the fact that we had vast
experience in these types of transactions, she didn’t
really think we needed to go through the entire diligence
and valuation process. She felt that if she could personally
talk to these investors they’d see how great her
company was and she could work something out. She decided
to go it alone.
We
liked this woman, and although we doubted she’d
become a client; we offered to introduce her to a private
equity group that we thought would be a good fit. I asked
to be included in the conference call, which she agreed
to. For over an hour I listened to the story of her company,
its promising future and past successes. At length, she
described new markets she could enter, different product
lines that could be introduced, but not once did she give
a financial data point.
It
was fascinating to watch this scenario play out. Of course,
the response came back from the private equity group that
the opportunity sounded interesting but “we really
don’t know anything about the company.” They
knew everything—except the dollars and cents, and
in business it’s all about the dollars and cents.
Afterward
I told her, you’ve got to get someone to help you
to present your company in the language that bankers speak.
You need to understand how they will look at an opportunity,
and present yourself and your company in terms they can
understand.
The
next example that comes to mind is a woman whose company
is doing phenomenal sales. She’d gone from zero
to twenty million in three years. She was making waves
for some of her larger competitors and they were making
inquiries as to whether or not her company was for sale.
The problem is, she’s not making any money. If I
told you the name of the company you’d recognize
it—that’s what a great job she’s done
on the marketing side.
When
we began to look at the company, it was clear to us that
she needed to diversify her distribution channels. She
had a money-maker, she was just focused on the wrong thing—she
needed to focus on earnings, not sales. She had one distribution
channel and they were not allowing her the opportunity
to make money. The scary part was she and her husband
had financed this entire venture themselves, pledging
their home and securities as collateral. They came to
us because after three years of working day and night,
they decided that it would be nice to explore other distribution
channels and even a potential sale. The trouble was it’s
hard to sell something that’s not making money.
It’s not impossible, but you’re not going
to get what you think you deserve.
Again,
we went through the explanation of what it would take
to run a valuation process and what needed to be done
before we could even start down the path. Their decision
was to pursue another marketing plan. But, because they
didn’t look at what makes a company like theirs
investable, bankable, and therefore ultimately saleable
for a premium, they’re spinning their wheels—and
in this case risking all of their assets.
I
tell these stories because they are perfect examples of
the mistakes I see women make every day and they’re
easy to avoid. Women are master marketers, networkers,
and they do a great job of taking care of employees. Where
they don’t do a good job is understanding how bankers—mostly
men—look at a company before they buy or invest.
Nor do I find that they really understand the dynamics
of what makes a company the most valuable. Roughly translated
it’s all about the numbers not the words. It’s
about understanding the language of business and using
it to your advantage. And it’s about being OK with
having more than one right answer, or not knowing the
answer and asking for or hiring help—something I
have seen men do in business time and time again.
Men
take the team approach, assembling their accountants,
lawyers and bankers to make sure they field the very best
team.
In
her book Play Like a Man, Win Like a Woman, author
Gail Evans points out that men play to win and women play
to keep everyone in the game. Business is a sport where
there are winners and losers. It’s a game with rules
and it has its own language. Business is also a sport
where stakes are extremely high both financially and emotionally.
You must speak the language, field the best team, and
play to maximize your single largest asset if you are
to win.
Julie
Garella, together with
Hugh McColl the former chairman of the Bank of America
founded McColl Garella, an investment banking firm dedicated
to woman owned and run companies across the United States.
For more information please visit www.mccollgarella.com.
Julie can be reached at jgarella@mccollgarella.com.
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