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Agency Development, Leadership, Leadership Coaching

Agency Leaders MasterClass: How To Build Mental Toughness That Can Make Your Agency More Successful

Being the leader of a communications agency is hard work. We are in a time of unprecedented change. Adapting to this change and developing the vision and leadership strategy that will inspire your staff takes a lot of hard work and courage. Sometimes it is a lonely job, especially if you are the owner/leader of a small to medium sized agency that doesn’t have a deep management team to lean on. It takes mental toughness to take on the challenges that agency owners face growing their business and servicing client all while maintaining a decisive and calm approach to solving issues. Here are 6 rules for developing your mental toughness so that you can do it all. Rule No. 1: Examine your beliefs. Think about the core beliefs you hold about your life, the world around you, and yourself. Have you developed ways of thinking that put limits on what you can do? Your past emotions, experiences, interactions, and behaviors always influence your present state of mind. You may find things from the past that negatively affect your present. Examine each belief and find the ones that limit you. Get rid of any negative beliefs—things that make you say "I can't" about yourself or your business. These negative beliefs may be a self-fulfilling prophecy, but getting rid of them will free you up to do, see, and try more. Rule No. 2: Change negative to positive. We're bombarded with negative self-talk all day long, and the inner voices never leave us alone. When we listen and give in to those voices, we end up quitting long before we truly run out of stamina. Catch yourself thinking negative thoughts and make a conscious effort to change them to positive ones. Change the way you talk to and think about yourself. Productive, positive thoughts will keep you going when negative thoughts would have caused you to shut down and quit. Rule No. 3: Use your mental energy wisely. You only have so much mental energy available every day. If you use it all on useless, anxious thoughts, you'll have nothing left for creativity and productivity. Stop thinking about "What if's" and "Maybe's". Bad things will always happen; no sense worrying about them or you live through them twice if not more. Anxiety will sap your mental energy and leave you drained. To develop mental fortitude, shore up your mind against worried thoughts. Rule No. 4: Analyze your progress. Whenever overwhelmed, take a moment to reflect on what you accomplished and then try and tackle the mountain in front of you. Big and little, you'll be amazed by how much of what you do goes unnoticed in the day-to-day scheme of things. By analyzing your progress, you can celebrate the small and large achievements. Just like you don't develop huge physical muscles overnight, the same is true of mental muscles. You have to use your mind every day in order to strengthen it. This simple activity can go a long way toward developing mental strength. Rule No. 5: Stop wishing, start doing. Do you ever find yourself thinking, "I wish I could build revenue" or "I wish I could win more clients like my competitor"? Stop wishing, and start doing! If you want to be like something, start thinking and acting like it. If you want to do something, do it. Stepping out of your comfort zone builds mental fortitude. You'll have to wrestle with anxiety, but that just adds to your strength. The more you stretch and grow, the easier it becomes to accept new challenges and push yourself beyond your limits day in and out. Have you developed a long term strategic plan for your agency that can help guide decisions and investments? Challenges that are tough are especially positive in developing our mental strength and versatility. Rule No. 6: Nothing works like tenacity. You are in one of the most competitive industry sectors there is. You are constantly competing for the best clients, talent, technology and ideas. Nothing succeeds like tenacity. We believe in the old Latin motto ‘Nulla Tenaci Invia Est Via’. To the tenacious no road is impossible. Go conquer!

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Agency Development, M&A Transactions, Mergers & Acquisition

Prosper Group Transaction Advisors Case Study – Cassidy & Associates

This week Prosper Group announced that it served as transaction advisors to the management team of Cassidy & Associates in their purchase of the lobbying firm from Interpublic. Kai Anderson (CEO) leads the management team under new ownership along with Barry Rhoads (Chairman), and Jordan Bernstein (COO). Prosper Group’s work with the management team included advising throughout the negotiation process, financial analysis, and strategic counsel through the documentation and closing process. Prosper Group will continue to provide counsel and advice to Cassidy & Associates as they migrate to become a fully independent firm. David Bosses, who heads the firm’s New York office and M&A practice, led the assignment. Anderson said, “David’s guidance and experience were invaluable to us during the entire process. Even during an amicable deal, such as this, trusted counsel ensures that you are well positioned for post transaction success.” David Bosses commented, “This is a prime example of how Prosper Group supports agency owners and leaders in complex transactions and negotiations as well as post closing concerns. There will be strong long-term benefits for the Cassidy team in securing their independence from IPG. It is truly a win:win deal” Prosper Group, founded in 2014, brings the expertise of former agency owners and leaders of global agencies to independent agency owners looking for support in charting a course for their future. Prosper Group serves as performance improvement, organizational development and transaction advisors to owners of marketing communications agencies. Prosper Group has offices in New York, Washington DC, Los Angeles, and San Francisco. Learn more: www.prospergroup.net. If you are considering making an acquisition or selling your agency Prosper Group can support you with a range of services that will ensure that you minimize the risk associated with such transactions and maximize the value that the transaction will offer you and your company. For more details or for a free consultation please contact dbosses@prospergroup.net

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Agency management, Mergers & Acquisition

Agency Owner’s Masterclass: Why You and Your Partners Need a Buy-Sell Agreement

AGENCY OWNERS MASTERCLASS: Why You & Your Partners Need A Buy-Sell Agreement There is a compelling case for creating a Buy-Sell Agreement for co-owned agencies. If owners agree about how to appraise business value and set the terms of payment in advance of any transfer event, they can avoid the heated and often damaging negotiations that can occur when one owner leaves the company. In this issue, we continue making our case for Buy-Sell Agreements by outlining several other advantages of a well-drafted and recently reviewed Buy-Sell Agreement. Controls Transfers A Buy-Sell Agreement can control all transfers of business ownership to the benefit of both the owner wishing to transfer ownership and the owners who want to acquire ownership. This agreement can assure that a selling owner (or his or her estate) is selling for fair value and under terms and conditions that are acceptable to all parties. Further, the agreement assures remaining owners that any transfers of ownership must be at least offered to them. This eliminates the potential for an outside party or a co-owner’s spouse or children to assume ownership of the business, all of which could negatively affect the company’s management, control, and value. A Valuation for All Reasons A Buy-Sell Agreement sets forth an agreed-upon method of valuing the agency that applies to all transfers. Owners’ valuations of their own businesses may be much different than the IRS’s or a co-owner’s. If owners rely on a “stated value” or a formula-based value, they may run into difficulties with both the IRS and other owners, because value in privately owned businesses changes often and rapidly. If Buy-Sell Agreements are not revised every year, their valuation formulas will favor either the buyer or the seller, and provide ample opportunity for disputes. Owners can avoid this by requiring a value determination from a certified business appraiser, but even that provision needs to be drafted carefully. Similarly, if co-owners buy a living co-owner’s interest, the value of the selling owner’s interest will likely be lower in the buying co-owners’ opinion than the seller’s. However, if their Buy-Sell Agreement requires the involvement of a business appraiser, they can avoid this impasse. It is best to agree—today—on a method of valuing the business when no owner knows which side of the transfer table he or she will be sitting on. Not knowing whether you will be a buyer or a seller tends to ensure that all owners work to protect the interests of both the buyer and seller. If owners don’t have an existing, binding process for valuing the business, ideally using a credentialed business appraiser, they can expect disagreements when one of the owners leaves the business. We strongly recommend that owners take the reins and design a valuation appraisal process suitable for their companies, and we would be happy to help you do so. The Fine Print In a Buy-Sell Agreement, owners can fix the terms and conditions of any transfer of ownership, including interest rate, length of buyout period, and security. In addition, it often is possible to provide the funding for future ownership acquisition, either during an owner’s lifetime or after death. Finally, Saving on Income Taxes Buy-Sell Agreements should be drafted to anticipate the likeliest transfer event: the sale of an ownership interest from one owner to another. While they require additional planning and document drafting, intra-owner sales can be designed to save as much as 30% of the company’s cash flow from taxation. For example, if the purchase price is $1 million, the cash flow required to pay a departing owner could be reduced by $300,000 or more. To repeat, this does take additional tax planning—but the result is well worth it. We’ve made our case about the importance of establishing a proper Buy-Sell Agreement, and now we want to help you do it. Contact us today and we can begin creating a Buy-Sell Agreement that covers all of your business wants and needs. Contact dbosses@prospergroup.nert for more details.  

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Agency client relationships, Agency Development, Agency management

16 Keys to Healthy, Long-Term, High-Value Agency/Client Relations

Breaking the Cycle Of Glee to Flee By John J. Seng 2017 marks my 38th year as a public relations practitioner, with 35 years on the PR agency side of the fence and three years in the mid-1980s managing external and internal programs for a leading pharmaceutical company. I’ve been the boss in the latter half of my career, launching the health-care only PR firm Spectrum in 1996. Compared to Google, founded two years later, I’m a failure! Well, not really. I consider our leading health and life science public relations firm a success in many important regards, all owed to getting right one of the two words that describe our profession: Relations. At age 38 in 1996, married with two young children, I decided that my current salary growth wasn’t the sole important criteria for me to secure my family’s future. Instead, I reasoned that stable employment with fair pay at a quality employer was far more crucial. Through the years, I’d worked at other independent shops and a few what I call mega-agencies between New York and Washington, but never more than four years or so anywhere. I was still learning, making lots of mistakes and growing, while my employers were expanding or downsizing or selling to third parties. I recognized that my career track lacked design and planning. Instead, I was reacting to unpredictable change. Whether a student or creature of PR agencies, I thought a lot about my experiences and the roots of all-too-often tectonic plate shifts of firms and realized that the unsteadiness in the businesses derived mainly from unbroken patterns of poor relationships between the PR firms and their clients. You know the drill. When the PR firm wins the business of a big client, it’s all hugs and kisses. Please enjoy the honeymoon of two or three months, and then settle into a continuum of steady performance that, after a time, perhaps two or three years, begins to degrade. Patience runs a little thin. Boredom and malcontent. Fingers start pointing. People have come and gone on both sides, so almost certainly some of the original parties may have changed jobs within or to positions at other organizations. Before too much longer, contracts aren’t renewed or the account is put out for bid. The incumbent PR firm management decides not to rebid or is not given the opportunity, and heads oftentimes roll. Did I leave anything out? At a crossroads in the midpoint of my career, I wondered why it had to be the way as above described. What does it take to break a cycle of “from glee to flee?” I’d like to think that the past 20 years of running things a different way at my own firm resulted in far more stable client-agency relationships. Despite some stumbling along the way, we’ve enjoyed mostly steady growth in revenues and employee headcount. What are the roots of healthy client-agency relationships? My non-scientific but firsthand anecdotal observations led me to conclude that the values that enhance the relationships between couples in our human population can also apply to the people who staff client-agency relationships. Also bear in mind that just as with people, it takes two to create a bond, but only one to break it. For clients and their agency partners both looking for stable relationships, consider my 16 rules for engineering a lasting, healthy bond. (I’m addressing both parties in the following list.)   Screen Shot 2017-06-05 at 8.11.13 PM In the beginning, when the client has just awarded the business to a new firm

  1. Form and communicate a mutual trust and strive to never break the compact. This rule is paramount. In my experience among all my employers, the biggest breakdowns result from one or both party’s taking the other for granted: Slacking on the pledge to give 100% and putting relationships on auto-pilot; not really caring as much as your trusting partner deserves; agency people forgetting to worry about your clients’ concerns and needs and thinking of solutions until too late when the client is yelling. To clients, introduce the principle of trust at the RFP stage and put appropriate language in your contracts: Your “marriage vows,” but in writing. Agencies, make the commitment, and honor and defend it, particularly if and when your management attempts to make you cut corners.
 
  1. Establish who’s in charge on the client side; and who’s in charge at the agency. Each party must set outstanding examples in leadership for its respective team. Each side’s leadership bears a responsibility to visibly set and adhere to high standards of behavior.
 
  1. Set the ground rules for process and engagement; and expectations for results. The more concrete the goals, the less ambiguity and potential for disappointment down the road. If possible, cut the red tape and simplify your approvals (without weakening them) mechanism to pave a cleaner pathway to success. A streamlined chain of command facilitates a speedy response time, especially important given 24/7 news cycles and the volatility of social media.
Every day thereafter…
  1. There’s no substitute for honesty. Be honest brokers on both sides. Give and expect respect at all levels and sectors of engagements. Be open and honest with credit and criticism. Is it really always the agency’s (or client’s) fault? Instead, when problems arise, run to them like a fire fighter smelling smoke. It’s incumbent upon each side to take a custodial approach to nurturing the relationship. Ask for critique and feedback. Too often, agency leaders avoid asking about what they’d rather not hear. But ignoring opportunities to learn whether a hurricane is forecast doesn’t guard you from that certain threat.
 
  1. Despite the best of each parties’ collective intentions, there will always be characters and personalities who, for whatever reasons, bring unhealthy levels of their own pet peeves, envy and passive-aggressive quirks into a business relationship. Leadership as well as rank-and-file should recognize and correct bad behavior, or the personal agendas of individuals will upset the balance in the relationship and hamper productivity for the entire relationship franchise, and likely increase costs with diminished results.
 
  1. Maintain fairness and dignity. Don’t air dirty laundry about other partners or executive colleagues in front of one another, and especially not within earshot of your partner organization. Succumbing to a temptation to badmouth others can foment a lack of trust (“Is he saying the same thing about me?”) and only makes the perpetrator look small. It amounts to unnecessary and distracting turmoil.
 
  1. The devil’s in the details. Leadership for clients and agencies should ensure that their respective billing and administration functions are aligned in every way. Agencies, send out clear, fair and timely billing. Clients, pay the bills on time. With questions, immediately ask them but don’t hold up an entire bill unless there are fundamental, outstanding disconnects. Remember the trust thing?
 
  1. Strike a better balance between use of email and the phone. Whenever emotions might be arising…Pick. Up. The. Phone! Even if you can only leave a voice mail. Know when to call instead of emailing or texting. Written communications are a must in the interest of clarity and sharing, but nothing substitutes live exchange, whether in person or by video chat or telephone call.
 
  1. Avoid aimless, regimented bean-counting. Judgment day needs to come, but it should be scheduled at meaningful intervals. Clients, do you really want your PR firm managers spending their hours looking at spreadsheets, or instead leading their teams to think about your needs and do their best work for you? For instance, spending a mere 30 seconds on a conference call acknowledging a major program success, and then grinding away on invoices or process minutiae for six minutes abuses everyone’s time and sucks inspiration and energy out of your communications partners. If you want your firm to think big, then give “big” far more of the limelight.
 
  1. A healthy agency-client relationship should be an even business exchange. Stop with the scope creep. Smart public relations agencies will bend over backwards to do a favor for a client, now and then. But incessant “never enough” is fatiguing and deflating to PR agency partners. By the same token, PR firms should remember rule #1 above and never take their clients for granted. If it feels like a shortcut, it is. If it feels half-hearted, guess what? It is.
 
  1. Show mutual respect for your people and the work challenges at hand. For starters, be on time, if not early, for appointments, or those teleconference calls. Prepare for meetings. Be organized and courteous. Unless it’s a true emergency, don’t leave meetings early or make sure to inform your teams in advance. Next, maintain your mindfulness and presence. Your goal is for the team to win, not prove you can speak louder and longer than others. Listen more and talk less. You will be heard, and more important, respected and persuasive.
 
  1. Figure out a way to not constantly check mobile devices during a presentation or discussion. For people who like to take notes on their laptops, unfortunately doing so looks like you’re multi-tasking instead of paying attention to what’s going on right in front of you. Doing so gives tacit permission for others on your team to give in to distraction. You lose too much eye contact in a personal meeting, which interferes with trust and engagement. Does this behavior encourage the cohesion your team needs as you prepare for that new product or service launch? Unless you’re the meeting transcriptionist, take notes on a legal pad. The message you send to colleagues on attentiveness is more important than your need to record every word. If you really, really need to capture detailed conversation, then do so by announcing to the group in advance that you would like to audio record the proceedings. That way, you can pay attention, and pay somebody else later to transcribe the proceedings.
 
  1. Show genuine appreciation for performance and results. Don’t over-celebrate mediocre results; yet don’t overlook or minimize outstanding outcomes. Don’t take all the credit for your agency partner’s successes (as surely you won’t take the blame for problems). Instead, position the achievement of goals as a team win, but credit the firm as appropriate. Ensure that your senior management weighs in now and then with calls or messages of appreciation. Many clients have no idea how far a kind word from the top can go with the agency.
 
  1. If you’re happy with the performance of your PR firm, don’t keep it a secret internally or externally. I’m completely biased here, but a really cool and cost-effective way to reward your PR firm for its outstanding work and relationship with you is to refer the firm to your colleagues elsewhere in your organization, and agree to serve as a reference for the firm as it seeks to earn the privilege of working for other clients. If lending your endorsement will help your partner agency win additional business, what’s so wrong with your PR agency becoming even stronger, and perhaps benefiting you and your employer?
 
  1. Avoid offering or encouraging excessive gratuities and gifts, starting with the client pitch. Freebies, unless they relate to the moment in a creative way, tend to cheapen our profession and detract from forming a healthy relationship. In government and in many companies, gifts of any amount are strict no-nos.
And, finally…
  1. Public relations firms should be, more than anything else, counselors to their clients. Recognizing the higher order of the profession as primary caretakers of an organization’s relationship with the public should be integral among internal client decision-makers all the way to the C-suite. Corporate or institutional procurement departments that insist upon rote, biannual or semi-annual outbidding relegate public relations counselors to commoditized, customer/vendor relationships that don’t incentivize agencies to do their best, even despite the best of intentions. The role of corporate procurement is here to stay. However, enlightened procurement operations seek to understand the deep value of the public relations profession understand the genuine cost-effectiveness that correlates to long-standing, mutually trusting and productive relationships between the client and public relations agency partners.
I’ve found nothing, I repeat, nothing more valuable in my experience than a decade or longer client-agency relationship that sails under its own steam of high quality results and performance for compensation. Sustained, healthy relationships maximize results for clients and minimize disruption and chaos on the business front. For their PR firm partners, relationships built on unflagging trust in one another carry with them unrivaled stability and the prosperity that goes in hand, for both parties.
  • John Seng is founder and chair of Spectrum Science Communications; as well as senior advisor to Prosper Group. John@ProsperGroup.net; @JohnJSeng
     

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Agency sales, Agency valuations, Mergers & Acquisition

Agency Owners Masterclass – How To Avoid the Pitfalls of a Sale to an Inside Team

Avoiding Disasters in Insider Transfers At Prosper Group we talk to agency owners every day about the difficult choices they face when planning their futures. Steve Smith was no different than millions of other baby-boomer business owners in that the thought of leaving his agency was never far from his mind, no matter how far away his exit might have been. He daydreamed about transferring the agency to his oldest daughter and perhaps to a member of his management team, yet he couldn’t gauge their passion for owning a business and hadn’t tested their management skills. And, of course, they had no money. Steve’s agency was his economic and financial lifeline. Without its income, his ability to use the business to accumulate wealth, the ability to sell his interest to a buyer who had cash, and a plan, Steve’s wishes would never come true. To Steve, it was obvious that if he ever wanted to exit his agency in style, he needed to wait for a white-knight buyer to appear on his doorstep bearing saddlebags of cash. So, Steve did what many other owners in his position do: nothing. If you think that transferring your business to your children or management team is inherently risky, you are right. Insider transfers are risky for three reasons:

  1. Insiders have no money
  2. Successors’ management/ownership skills and commitment to ownership may be untested
  3. Owners lose control of the business if they make the transfer before they are completely cashed out.
On the other hand, the possible benefits of an insider transfer include the following:
  1. Keeping the business in the owner’s family or extending the owner’s legacy through his or her hand-picked management group.
  2. Motivating, retaining, and rewarding key employees.
  3. Reaping more after-tax money than a third-party transfer.
  4. Retaining control until all, or most, of the purchase price is received.
  5. Remaining active in the business while gradually reducing day-to-day responsibilities.
  6. Providing time for owners to build up personal assets (via distributions of cash) before their exits.
The trick is to design a plan that minimizes risk so owners can reap all of the potential benefits. Let’s first look at how that might be done.
  1. Insiders have no money; therefore, it is too risky to sell to them. That’s true if owners don’t design a transfer strategy that puts money in the insiders’ pockets as they increase the value of the company. Owners have to work steadily and effectively to build cash flow (the source of all cash outs) through (a) the installation of Value Drivers and (b) careful planning to minimize taxation years in advance of the transfer.
Unless owners carefully plan to avoid it, cash flow can be taxed twice. This double tax, sometimes totaling more than 50% of the total payout, can spell disaster for many internal transfers. However, through effective tax planning, much of this tax burden can be legally avoided. Finally, agency owners and their advisors, including a certified business appraiser, should use a modest but defensible valuation for the company. By using a lower value as the purchase price, the size of the tax will be correspondingly reduced. The difference between what owners will receive from the sale of the business at a lower price and what owners want to be paid after they leave the business is “made good” through a number of different techniques to extract cash from the company after the owner leaves it.
  1. Successors’management/ownership skills are untested. If the successors’ ownership skills are untested, owners should create a written plan to systematically transition management and ownership responsibilities to their successor(s), beginning today. The transition period, during which owners test both their assumptions and their successors’ skills, usually takes several years to complete.
  2. Losing control before being cashed out. This only happens if owners and their advisors fail to implement a transfer strategy designed to keep the owner in control until he or she receives the full sale price for the business. In a properly crafted plan, owners keep control through a well-designed and incremental sale of the company based on improving company cash flow over time.
There are four keys to reducing the risks of an insider transfer:
  1. Plan the transfer well in advance of your desired exit date. Executing an insider transfer takes longer than executing a sale to a third party.
  2. Implement value-building activities, which are just as—if not more—important to an insider transfer as they are to a sale to a third party.
  3. Design the plan to be tax-sensitive.
  4. Write the plan down and hold advisors accountable.
We have the experience and know-how to help you implement those keys and unlock the doors to your successful exit. Please contact us today to get started on your insider transfer today. For a  full list of our services please visit www.prospergroup.net.  

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Agency Development, Agency management, Leadership Coaching

6 Ways That Agency Leaders Can Handle Difficult Employees

Communications agencies are stressful places to work. Deadlines, unhappy clients, interpersonal issues and endless admin. Most sources of stress at work are easy to identify. If your agency is working to land a big new client that your organization needs to function, you’re bound to feel stress and likely know how to manage it. It's the unexpected sources of stress that take you by surprise and harm you the most. Recent research from the Department of Biological and Clinical Psychology at Friedrich Schiller University in Germany found that exposure to stimuli that cause strong negative emotions -- the same kind of exposure you get when dealing with difficult people -- caused subjects’ brains to have a massive stress response. Whether it's negativity, cruelty, the victim syndrome or just plain craziness, difficult people drive your brain into a stressed-out state that should be avoided at all costs. The ability to manage your emotions and remain calm under pressure has a direct link to your performance. TalentSmart has conducted research with more than a million people, and we’ve found that 90 percent of top performers are skilled at managing their emotions in times of stress in order to remain calm and in control. One of their greatest gifts is the ability to neutralize difficult people. Top performing leaders have well-honed coping strategies that they employ to keep difficult people at bay. While we’ve run across numerous effective strategies that smart people employ when dealing with difficult people, what follows are some of the best. To deal with difficult people effectively, you need an approach that enables you, across the board, to control what you can and eliminate what you can’t. The important thing to remember is that you are in control of far more than you realize.

  1. Set limits. 
Complainers and negative people are bad news because they wallow in their problems and fail to focus on solutions. They want people to join their pity party so that they can feel better about themselves. People often feel pressure to listen to complainers because they don’t want to be seen as callous or rude, but there’s a fine line between lending a sympathetic ear and getting sucked into their negative emotional spiral. You can avoid this only by setting limits and distancing yourself when necessary. Think of it this way: if the complainer were smoking, would you sit there all afternoon inhaling the second-hand smoke? You’d distance yourself, and you should do the same with complainers. A great way to set limits is to ask complainers how they intend to fix the problem. They will either quiet down or redirect the conversation in a productive direction.
  1. Rise above it. 
 Difficult people drive you crazy because their behavior is so irrational. Make no mistake about it; their behavior truly goes against reason. So why do you allow yourself to respond to them emotionally and get sucked into the mix? The more irrational and off-base someone is, the easier it should be for you to remove yourself from their traps. Quit trying to beat them at their own game. Distance yourself from them emotionally and approach your interactions like they’re a science project (or you’re their shrink, if you prefer the analogy). You don’t need to respond to the emotional chaos -- only the facts.
  1. Stay aware of your emotions. 
 Maintaining an emotional distance requires awareness. You can’t stop someone from pushing your buttons if you don’t recognize when it’s happening. Sometimes you’ll find yourself in situations where you’ll need to regroup and choose the best way forward. This is fine and you shouldn’t be afraid to buy yourself some time to do so. Think of it this way -- if a mentally unstable person approaches you on the street and tells you he’s John F. Kennedy, you’re unlikely to set him straight. When you find yourself with a coworker who is engaged in similarly derailed thinking, sometimes it’s best to just smile and nod. If you’re going to have to straighten them out, it’s better to give yourself some time to plan the best way to go about it.
  1. Establish boundaries. 
 This is the area where most people tend to sell themselves short. They feel like because they work or live with someone, they have no way to control the chaos. This couldn’t be further from the truth. Once you’ve found your way to Rise Above a person, you’ll begin to find their behavior more predictable and easier to understand. This will equip you to think rationally about when and where you have to put up with them and when you don’t. For example, even if you work with someone closely on a project team, that doesn’t mean that you need to have the same level of one-on-one interaction with them that you have with other team members. You can establish a boundary, but you’ll have to do so consciously and proactively. If you let things happen naturally, you are bound to find yourself constantly embroiled in difficult conversations. If you set boundaries and decide when and where you’ll engage a difficult person, you can control much of the chaos. The only trick is to stick to your guns and keep boundaries in place when the person tries to encroach upon them, which they will.
  1. Don’t die in the fight. 
 Smart people know how important it is to live to fight another day, especially when your foe is a toxic individual. In conflict, unchecked emotion makes you dig your heels in and fight the kind of battle that can leave you severely damaged. When you read and respond to your emotions, you’re able to choose your battles wisely and only stand your ground when the time is right.
  1. Leaders don't focus on problems -- only solutions. 
 Where you focus your attention determines your emotional state. When you fixate on the problems you’re facing, you create and prolong negative emotions and stress. When you focus on actions to better yourself and your circumstances, you create a sense of personal efficacy that produces positive emotions and reduces stress. When it comes to toxic people, fixating on how crazy and difficult they are gives them power over you. Quit thinking about how troubling your difficult person is, and focus instead on how you're going to go about handling them. This makes you more effective by putting you in control, and it will reduce the amount of stress you experience when interacting with them. Prosper Group works with agency owners and leaders to help them improve their business performance and secure the maximum long term value from their agencies. We have structured leadership development programs that equip leaders to handle the difficult issues that arise in busy agency environments. For more details please contact the Alex Halbur, Managing Partner, alex@prospergroup.net. 310 936 3774    

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Blog

M & A Masterclass: The 10 Key Elements Required When Selling Your Agency to an Internal Team

Today, we discuss the essential elements of a plan agency owners can use to transfer a business to insiders that keep the owner in control until he or she is paid the sale price. If you suspect that the children, key employees, or co-owners you would pick to succeed you do not have the funds to cash you out, consider the following 10 elements that make insider transfers successful. Element 1: Time A transfer to insiders takes time: time to plan, time to implement, and time for successors to pay the departing owner. Typically, the more time agency owners take to transfer the company, the less risk they incur and more money they receive from the new owners. Thus, the first question an owner must answer is, “Am I willing to take time (typically three to eight years) to execute and complete an insider transfer (while maintaining control)?” If the answer is no, then it is probably best to consider other Exit Paths. Element 2: Defined Owner Objectives If owners are willing to devote the time necessary to transfer the business to insiders, they also must define and/or quantify their objectives. These may include the following.

  • Financial security and independence.
  • Departure/retirement by a chosen date.
  • Keeping family legacy or company culture intact.
  • Rewarding key employees.
  • Taking the business to the next level on someone else’s dime.
In a well-designed transfer plan, these objectives are met before control is transferred. Element 3: Cash Flow Healthy cash flow is critical to any sale. No buyer, whether outside third party or insider, wants to buy a company with anemic cash flow. However, in a transfer to insiders, cash flow assumes gargantuan importance, because initially, it is the major, if not sole, source of an owner’s sale proceeds. Element 4: Growth in Business Value Like healthy cash flow, buyers look and pay top dollar for companies that have the potential to grow in value. In transfers to insiders, ownership transfers generally occur only if cash flow continues to grow. Thus, it is vitally important that owners contemplating an insider transfer install and cultivate Value Drivers before and during their exit transition. (For a quick refresher on Value Drivers, please contact us for one of our Value Drivers white papers.) Element 5: Capable Management That Desires Ownership Having a motivated management team capable of replacing the owner is hugely valuable to any buyer, especially when that buyer is an insider. The management team that succeeds the owner must desire ownership and be willing to sign personally for any acquisition financing or ongoing company debt. Owners often assume that their management teams want to own their companies, but sometimes, management teams balk when they realize that they have to pay for ownership. Thus, assuring that the management team not only desires ownership but is willing Element 6: Minimize Taxes Most owners don’t want to pay any more taxes than they are legally required to pay. Owners who are contemplating insider transfers must take special care to minimize taxes. In an insider transfer, it is imperative that owners and their advisors structure the sale of their businesses to minimize taxes on the company’s cash flow (pre-tax income), because without planning, cash flow is taxed twice: (a) once when the insider receives it (as the new owner) and then pays taxes before paying the owner to purchase the company and (b) when the owner pays taxes on the proceeds received. One goal of tax planning is to subject the company’s cash flow to taxation only once. Accomplishing this feat takes considerable planning, but it’s worth the time and effort to save a third or more of the company’s cash flow from this type of double taxation. One-time taxation means owners receive more money more quickly and thereby reduces the risk that the exiting owner will not be paid in full. Element 7: Regulate an Incremental Transfer of Ownership One of the most important advantages of a well-designed insider transfer plan is that it gives the owner the ability to regulate how ownership is transferred, when it is transferred, and how much ownership is transferred. If company performance falters, employees stumble, or the owner chooses instead to sell to a third party, a well-designed insider transfer Exit Plan keeps the owner in the driver’s seat. Element 8: Increasing Control Means Decreasing Risk While business owners take risks every day, they don’t relish risking their own and their families’ future financial security. Therefore, we use strategies to keep voting and operational control in the hands of the owner. This shifts operational business risk from the exiting owner to the incoming owners so that exiting owners stay in control of their companies until they receive the entire sale price. (If you’d like to talk about the many ways we accomplish this for our clients, give us a call.) Element 9: Written Road Map With Deadlines To succeed, we believe that owners must put their transfer plans in a written document and communicate it clearly and regularly to the eventual owners. If the plan is not in writing, it simply is not credible, and neither the owner nor his or her employees will take it seriously. More importantly, the written plan is the playbook for owners’ exits. Owners will use their written plans to coordinate their actions with those of their advisors, thus reducing delays and costs. The plan should include a timeline and provide accountability (i.e., who will do what, when) for all participants, including the owner. Without incremental, staged checkpoints, it’s nearly impossible for owners to exit on their terms. You’ll never finish a marathon if you don’t have mile-by-mile goals to meet. Element 10: Owner Education Owners need to understand the ins and outs of insider transfers because, unlike sales to third parties, they will control their businesses and the Exit Process until they’ve been paid in full. That education begins as you read this newsletter. We would love to teach you more about the ins and outs of insider transfers, and share our experience and proven success in addressing these elements with you. Please contact us today to begin addressing the elements of an insider sale or to learn about which strategies we can help you implement to assure that you exit your business on your terms. Contact Alex at 310 936 3774 for an initial consultation

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Agency sales, Agency valuations, Mergers & Acquisition

Is Your Agency Sale Ready?

If you think that planning for the biggest financial event of your life is a good idea and prefer an approach other than “wait and see,” what can you do to make sure your agency is ready to sell when you decide the time is right? Step One: Define your Exit Objectives:

  • How much cash you need to fund a financially secure post-exit life.
  • When you want to leave.
  • Which kind of buyer you prefer (third party or insider).
Step Two: Convert your impression of what your company is worth into an objective valuation. Step Three: Build needed value into your company by making yourself an Inconsequential Owner. Step Four: Sale to a third party. Generally, agency owners are attracted to a third-party sale (rather than a sale to insiders, such as family members, co-owners, or employees) for one or more of the following reasons: When the market is favorable and strategic buyers are active in the marketplace, a sale to a third party can yield more cash. A sale to a third party usually is less risky than one to insiders. Sellers get their money more quickly than in a transfer to insiders. Insiders (children, co-owners, and employees) don’t have what it takes (usually cash and sometimes desire) to buy the company. If these statements apply to your situation, your next step is to ask the following: Am I personally and financially ready to exit? Is my business fully prepared for my exit? Is the mergers and acquisitions (M&A) marketplace favorable for sellers? To optimize the likelihood of a successful sale, owners should embark upon the sale process only if they can answer each of these questions with a confident “Yes!” Agency owners should seek answers and resolutions the moment doubts about whether to exit occur. They should not wait until they are burned-out, the M&A market declines, or an unexpected event forces their hand. Owners should begin their own process today to assure that they take their businesses to market only when they, the business, and the market are ready. They should seek out the advice of experts and read more about the entire sale-preparation process. Owners should start to assemble their Deal Team by interviewing prospective advisors. Depending on the size of the company, the transaction intermediary may be an investment banker or a business broker. Owners will need to find an attorney skilled in transaction work, but if the owner’s current CPA is skilled in tax-minimization techniques, he or she may be able to work on the Deal Team. Remember, while these advisors will cost money, they should make money as well. Asking them all how they plan to do that is critical. Using the expertise of the Deal Team can help owners create a plan that does the following: Minimizes the tax consequences of the deal. Accounts for an owner’s willingness to remain active in the company once the deal closes. Determines whether the transaction will best be conducted as a controlled auction or negotiation. Specifies which kind of payment owners will accept. Includes a strategy that allows owners to focus on their companies’ profitability while the transaction occurs. The Deal Team should also help avoid the all-too-common traps that await selling owners, including not minding the store, information leaks, prematurely rushing to market, and running off with the first buyer. John Brown, the CEO of BEI (our Exit Planning resource partner), gives owners an important piece of advice: “Whether your company is small or large, selling it to a third party is the biggest challenge—and opportunity— of your business life. I urge you to grab hold of this opportunity. Refuse the role of bystander or bit player. Instead take center stage as an active and full participant in the sale process and you will add value and minimize uncertainty and risk.” We'd like to add our experience and knowledge to your Deal Team, and we can help you screen candidates for other seats at the Deal Team table. If you would like more information to help you determine whether your business is a candidate for a third-party sale or your next steps in the third-party sale process, please contact us today. alex@prospergroup.net david#prospergroup.net

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Agency Development, Company sale, Company valuation, Exit planning, Mergers & Acquisition

Exit Planning For Agency Owners – Start With A Proper Valuation

Exit planning is something that many agency owners that we meet put off until it is absolutely necessary. In some cases they put it off so long that there are in risk of losing some of the value that they built up in their business. Excuses to avoid Exit Planning include the following:

  • The business isn’t worth enough to meet my financial needs. When it is, I’ll think about leaving.
  • I will be required to work for a new owner for years.
  • I don’t need to plan. When the business is ready, a buyer will find me.
  • This business is my life! I can’t imagine my life without it!
Assuming we are successful in persuading you that Exit Planning not only helps your business while you are in it but also is the best way to leave the company to the successor you choose, on the date you choose, and for the amount of cash you want, you might ask, “How do I, as the agency owner, jump into Exit Planning?” Let us suggest that one of the best places to jump in is to take some measurements. First, owners should retain a valuation expert to perform an estimate of the company’s value to find out what it is actually worth. (If you plan to sell to a family member, co-owner, or employee, retain a certified business appraiser. If you foresee a sale to a third party, ask a business broker or investment banker for a “sale-price estimate.”) The transaction advisor an owner chooses (an investment banker if the company’s likely value is at least $5 million and a business broker for smaller businesses) should be able to give the owner a range of value for the business in today’s mergers and acquisitions (M&A) marketplace. Regardless of the state of the M&A market, though best guesses and educated opinions are nice, they are weak foundations for Exit Planning. Second, owners should sit down with their financial advisors to figure out how much cash they will need to meet their financial goals. Tapping into the expertise of a financial advisor to help objectively analyze an owner’s future needs and make realistic, risk-sensitive assumptions about investment rates of return is paramount. To illustrate how assumptions, rather than objective measurements, can lead owners astray, let’s look at Sam Reed, a hypothetical agency owner who went into a transaction armed only with assumptions. When Sam Reed began thinking about selling his business, he started paying close attention to what competitors were getting for their companies. He applied his industry’s rule of thumb to his agency, compared his agency to others, and figured that his agency was worth about $20 million. He calculated that he’d take home about 75% of that after taxes. Since he needed $6 million to pay off business debt, he thought he could cash out for $9 million. Sam hadn’t put a lot of thought into what income he’d need for a comfortable post-exit life, but figured that at his age (50), $9 million, yielding 8% per year ($700,000+ annually), would be an adequate replacement for the $850,000 salary and distributions he currently took from the business. With the stars seemingly aligned, Sam put his agency on the market. Unfortunately, Sam’s telescope was out of focus: His idea of business value was unrealistically high, given the flatness of his company’s cash flow and the state of the M&A market. The best offer on the table was $14 million, of which $11 million was in cash, leaving him with about $2 million net at closing (after taxes and debt payoff), and another $3 million in future payments. When Sam learned from his financial advisor that the realistic return on the net proceeds ($2–5 million depending on whether he actually received the $3 million in future payments) was 4–5%, he had no alternative but to back out of the sale process. Sam made two critical mistakes: He miscalculated the proceeds he’d receive at closing and unrealistically overestimated the rate of future investment return. He would have saved time, effort, and money if he had (1) gotten a sale-price estimate that allowed him to realistically estimate how much he would net from the sale and (2) forecasted a realistic, risk-sensitive rate of investment return (as part of a financial needs analysis). With these two pieces of information in hand, Sam could have made a more informed decision. Many agency owners don’t have the luxury of time. We suggest that you at least stick your toe in the Exit Planning pool by obtaining these two simple measurements. Test your assumptions: You may be surprised by the results. Call us so we can help you get started on a plan that can make your company more valuable today and help you achieve the future exit you desire.

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Blog

How Do You Create An Agency Full Of New Business Rainmakers?

The biggest constraint to agency growth is the number of senior leaders that can qualify, develop and win a new business lead. Too often we see that the owner or CEO is critical to every pitch – limiting revenue potential and stifling team members from stepping up. Some agencies have no defined sales methodology or consistency for approaching new business. While others keep trying the same old way of putting together presentations and are surprised that they’re not translating to wins. So, what does it take to create a winning agency sales culture? We’ve created a business development and pitch coaching offering to help with one or all of the following: Create a sales culture by transforming participating and leading new business efforts from a chore, to an exciting career development opportunity Help agencies understand and design new business best practices for consistency of results from leader-to- leader and pitch-to-pitch Enhance the skill level of individual second tier leaders Differentiate the agency through creative packaging of proposals and prospect engagement Position the agency for greater growth by removing all of that burden from the owner’s shoulders Prosper Group’s highly effective business development training program is tailored to the unique dynamics of each our marketing communications agency clients – empowering the broader agency team and energizing the whole process and approach to new biz. Learn More About Prosper Group’s Services Our comprehensive approach includes analysis and training in the following areas: What should occur before receipt of an RFP? Qualification of leads Staffing and resources for the proposal Best practices for development of insights Development of the story and related deck Rehearsal and pitch prep Presentation training Pre-and-post pitch salesmanship The course is led by senior industry figure Rum Ekhtiar who has held senior development roles in international networks such as MSL, Porter Novelli and Ruder Finn. His proven methodology has translated into multimillion dollar assignments and has transformed teams into highly effective new business leaders.

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How Can Agency Owners Build up The Value Of The Business Before They Sell It?

In all likelihood, you are absolutely critical to the success of your agency. Without you, there is no business. We want to fix that. With a little luck and a lot of hard work, we can help you become an Inconsequential Agency Owner. At some level, all owners understand that they will someday leave the businesses they have created. Let’s assume for a moment that you leave your agency permanently tomorrow. If you are an Inconsequential Owner, your exit will have no impact on the business, and that’s good for business value. Buyers pay for business value, not for the departing owner. If you constitute a significant part of your company’s value (i.e., you are a Consequential Owner) and you have left the scene, there likely will be few buyers interested in your company, and those who are interested likely will pay significantly less than they would had you been an Inconsequential Owner. Exit Planning is a process you can use to transform yourself into an Inconsequential Owner for your sake, your family’s sake, and your company’s sake. While perhaps not the most flattering label, becoming an Inconsequential Owner not only increases your business’ value but also probably aligns with what your friends and children have been calling you for years! All Exit Plans should answer this question: “What has to happen in my business by the time I leave it to (1) enable me (and my family) to achieve financial security and (2) allow me to move forward with the rest of my life, confident that I have been a good steward of the business?” The details that constitute “what has to happen” are discussed in myriad newsletters, books, and white papers that we can share with you. For most agency owners, one of the first and most important things that “has to happen” after figuring out where they are (i.e., current business value) and where they want to go (i.e., Exit Objectives) is to create and sustain business value. When we talk about value in the context of Exit Planning (Step Three of The Seven Step Exit Planning Process™), we divide the discussion into three areas: building value, protecting value, and minimizing income taxes. The following is a summary of each area. Building Value When considering building value, we first will ask, “What do you, as the owner, need to do to create a successful agency that can operate without you?” Topics include developing a sector focus, creating a top management team, and adopting a proper financial focus and corresponding policies. Second, we ask, “Which characteristics will buyers pay handsomely for?” We call these characteristics Value Drivers, and they include (but aren’t limited to) the following: A stable and motivated management team. Operating systems that improve cash flow sustainability. Understanding and nurturing the agency’s positioning and competitive advantage. A solid new business strategy which is building a diversified customer base. A realistic growth strategy. Effective financial controls. Good and improving cash flow. Protecting Value Protecting value relates to both internal and external threats. Instead of handling these threats as they occur, owners must identify threats and know how to avoid them before they happen. Some examples include protecting propriety information and trade secrets; preventing employees from doing harm to the business when they leave by taking customers, employees, and business relationships; and anticipating and evaluating outside threats to owners’ companies. Minimizing Income Taxes The lifeblood of every agency—and therefore the best indicator of value—is cash flow. Our discussion includes how to preserve cash flow and value from income taxation (legally, of course). Income taxes collected on the sale of a business interest can range from 0 to over 50%. Of course, each tax-efficient design and the tools used to implement those designs usually have disadvantages along with their advantages. However, to date, we have not identified any upside to paying more than necessary to your silent partner, Uncle Sam. As you read articles about The Seven Step Exit Planning Process, we hope you begin to appreciate that while planning and preparing yourself and your business for your ultimate exit may seem to be a daunting task, it does not need to be. Indeed, if you approach the task systematically, you will use only small chunks of time and effort for a potentially enormous payoff. About Prosper Group Prosper Group was founded in September 2014 to bring the expertise of former agency owners and leaders of global agencies to independent agency owners looking for support in charting a course for their future. Prosper Group serves as performance improvement, succession planning and M&A transaction advisors to owners of marketing communications agencies. Prosper Group has offices in New York, Los Angeles, Washington, D.C. and San Francisco.

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