Brands and their agency partners need to adapt to the social realities in 2017. In the last 5 years it had become a lot harder for brands to connect with their audiences organically in social media channels. As a result communications planners should recognize the dynamic changes happening on all social media platforms in order to deliver value for their clients in these channels. For example, Facebook prioritizes, using its own algorithms to auto-select what we see. Content from friends and family members takes precedence, meaning that company updates, more often than not, don’t make the cut. Facebook is hardly alone in elbowing companies to the social margins. Users of Instagram, which the social network owns, now have their feeds curated by algorithm, with the order optimized based on “relationship with the person posting.” Even Twitter, long celebrated as the place to see real-time, streaming updates in the raw, is increasingly algorithm-driven, with the “best Tweets” auto-selected to appear at the tops of users’ feeds. To lovers of the free-wheeling early stages of social media—where the only limit to a company’s reach was creativity and cat-GIF curation—these changes add up to nothing short of an obituary. The days of being able to engage with users for free on social media through so-called “organic posts” are undeniably numbered. This is hardly a secret or a news scoop. We’ve known it for years, in fact. But many of us have been in a state of denial. It’s time to come to grips with the hard truth that 2017 presents us with: social media as we know it may not be dead, but it’s surely dying. This doesn’t mean businesses should give up the ghost, though. In fact, it’s just the opposite. The social paradox Social media is more pervasive than ever and poised for a unique metamorphosis. It’s about to be reborn over the course of this year as a hyperfocused business tool—more targeted, simpler to use, and possibly more effective than before. A curious thing has happened as companies’ ability to reach users organically on social media has tanked: the power of social media to influence buying decisions has surged. In one of the most comprehensive studies to date, McKinsey recently surveyed 20,000 consumers in Europe and found that social recommendations are behind more than a quarter of all purchases made. This is well above the 10 to 15 percent that’s been estimated in earlier research. And in the majority of cases, the McKinsey report found, these social updates had a direct impact on buying decisions. For companies, this presents a thorny challenge. Social media has never been more influential, but getting updates in front of users has never been more challenging. To shun Facebook and other networks altogether is to ignore the more than 2 billion users around the globe who rely on social media for news and updates. But to embrace them requires jumping over ever-higher hurdles in the hopes of connecting with customers. But there are some viable solutions. Not surprisingly, paying for social media ads is a big part of the equation—just as Facebook, for one, has intended. There’s more to the story than bowing to the social network’s business model, though. Some of the most innovative companies are increasingly taking a three-pronged approach—blending paid social media ads with strategies that tap customers and even their own employees to spread content further and more effectively than before. It Pays To Advertise In a new report, Gartner’s industry analysts are unusually blunt: “Sustained success in social marketing now requires paid advertising.” And they’re right. It’s absolutely true that, like it or not, pay-to-play is becoming the foundation of effective social strategies, with more than 80 percent of companies reportedly planning to deploy a social ad campaign in the next year. All the major social platforms now have their own “native ads”—promoted posts and updates designed to look just like the real things, distinguished (sometimes barely) by tiny disclaimers. The good news is that once you get over the initial sticker shock of ponying up for Tweets and Facebook posts, paid social media actually presents some clear advantages for businesses. After all, the social platforms that are pressuring companies to pay for reach still want to keep them happy in exchange. So instead of blasting out updates, brands can now target both followers and non-followers with a high degree of accuracy. Yes, you have to pay for that, but the data captured by networks now lets companies zero in, not just on specific demographic groups, but on “lookalike audiences,” similar to those of competitors. Ads can then be optimized depending on a campaign’s goals—from views to click-throughs and more—and budgets can be allocated more exactingly. Paid social media analytics tools can give a real-time window into results, with instant feedback on the cost per view, click, and other metrics. While the work of creating and bidding on these ads has put off some users in the past, a host of online platforms can now simplify the process of deploying paid campaigns. Put simply, advertising on social media is effective, scaleable, and increasingly DIY. Mobilize the social media power on your payroll Paid ads offer a surefire way to reach a desired audience on social media—for a price. But there’s another critical and generally overlooked route to getting the message out that comes with no extra cost: your own employees. It’s one of the first things that we advise Prosper Group clients to do in elevating their social media strategies. Employee advocacy—inviting coworkers to share brand messages on their own social media accounts—can have a range of benefits. For starters, you expand your reach, often exponentially in the case of large companies. Plus, because messages are being shared from personal accounts (rather than the company’s), they generally reach a higher percentage of followers. Not to mention that content shared by employees reportedly gets eight times more engagement, on average, than content shared by brand channels—and is re-shared 25 times more frequently. But there’s a right way and a wrong way to encourage employee sharing. It should never be obligatory, for starters. Employees have to actually want to share company news, and it needs to be relevant to their own followings. And the process of sharing has to be dead simple. Asking employees via email or Slack to post something on social media, for instance, is a clumsy workaround and rarely sees results. As an alternative, we here at Hootsuite developed a “one-click” option where companies can send pre-approved updates via mobile app to employees, who then just tap to send. Inspire customers to create “User-generated content” has been a buzzword for a while now, but it’s worth understanding why it still makes so much sense on social media. On one level, it taps into users’ basic impulse—the one at the heart of social media’s appeal in the first place—to create and engage, rather than sit on the sidelines passively. For companies, it’s a way to build ties with customers while leaning on users for crowdsourced inspiration and creativity at the same time. Plus, encouraging your own customers to create and share branded content represents a sort of end-run around algorithms that limit the reach of posts from corporate accounts. But how do you incentivize users to generate all this clickable content? Well, an old-fashioned contest never hurts. The “reachpocalypse” is upon us. But for businesses, the decline of organic social media reach needn’t be a doomsday scenario—quite the contrary. The new social media order that’s taking shape in 2017 promises companies the kind of precision and measurable results long expected from traditional channels like print and broadcast. Social media had a rough year in 2016, but things are looking up. Prosper Group helps communications agencies improve their performance, plan succession and advises on major M&A transactions. Please feel free to contact me if you would like to know more.
Selecting Your Exit Goals When a man does not know which harbor he is heading for, no wind is the right wind. –Seneca The starting point for any type of plan is defining its goals. In the case of planning a business exit, this means knowing what it means to “exit your business in style.” Philosophers, business owners, and successful people from all walks of life understand the critical importance of establishing goals, creating plans to attain those goals, and persevering to see their plans through to completion. Having worked with owners to create successful Exit Plans, we know that it is critical for owners to ask several questions to establish three principal Exit Objectives before moving forward with their Exit Plan. How much cash do they need when they exit to support the lifestyle they desire? (Do they want to be cashed out when they leave the business or are they willing to receive the purchase price over time?) When do they want to leave the company? (How much longer are they willing to remain active in the company?) To whom do they want to sell/transfer the company? (To a child? Key employee? Co-owner? An outside party that can pay top dollar?) Let’s look at an example of an owner who arrived at his exit date without a plan to reach his goals, as told by an Exit Planning Advisor. Ben, the owner of a 45-employee plastic-extrusion company, had long thought of transferring his business to a son and a key employee but had done little to prepare for that transfer. However, as tougher economic conditions challenged his company and he reached his 58th birthday, he decided it was time to retire and called me. I said, “Ben, it’s helpful that you’ve established two of the three Exit Objectives critical to all successful business exits. You’ve determined that you don’t want to work much longer in the business, and you’ve decided that you want to transfer the business to your son and a key employee. But what about the third Exit Objective: How much money do you want or need when you leave the business? Have you determined whether you need cash or can accept a promissory note?” At this point, Ben had two choices: He could retire immediately and try to sell the company for cash, but not to his son and key employee: They had no cash, and no bank would lend an amount even close to the amount of money necessary to close the deal. If Ben wanted to sell today and receive an amount that would support his post-exit lifestyle, he would have to sell to an outside third party with sufficient cash. Ben could sell the company to his son and key employee but would have to wait 6–10 years to receive the entire purchase price, which was not guaranteed. Ben’s situation illustrates why setting objectives or goals (and understanding how each affects other objectives and goals), creating a plan, and acting to reach those goals is critical to a successful exit. If you prefer to leave your business in style (which to us means leaving your business to the successor you choose, at the time you choose, and with the amount of cash you desire), you must take time to formulate specific, consistent, attainable goals and objectives. You must determine a course of action—a plan—based on those goals, and you must persevere with that action until you achieve your goal. Without setting goals at the outset of your exit journey, you may drift aimlessly until, like Ben, it’s too late. Don’t be an owner who is too busy working in your company to work on the most important financial event of your business life. We are happy to help you begin by providing you with more information about setting objectives and other Exit Planning topics. You can call David Bosses on 917 543 8839 for an initial free consultation
There are a variety of reasons that a communications agency might need a content audit. First and foremost it is vital that agencies embrace content marketing as a way of demonstrating relevance in today’s marketing landscape. Having a content audit means that you can understand what kinds of content will help you communicate your thought leadership, and it could also help you to optimize your new business performance. Here are six specific reasons you should consider a content audit in 2017: Reason No. 1 – It Will Enable You To Identify What Is Needed To Develop Qualified New Business Leads Here’s a scary stat: one-third of B2B marketers don’t track where their leads come from. This clearly needs to be corrected in order to figure out what marketing channels work and which should be eliminated. Once your agency takes a look at lead generation, you may find that while more and more traffic comes in, none if it is really relevant to your brand. This is oftentimes a content problem. The content could be attracting the wrong target and therefore no one converts. 56% of survey respondents said they were doing content marketing without a plan. When qualified leads are not coming in, maybe the content was not written with a clear buyer persona; therefore, the content does not address a specific need or pain point of that audience. Reason No. 2 – It Will Enable You To Develop And Focus On A Clear Value Proposition This is one of the most frequent issues we see at Prosper Group when we are working with agencies that are struggling with their new business efforts. Only 7% of leadership teams can explain a clear, common value proposition, but 85% of agency CEOs say their employees can state the company’s value proposition. This dichotomy leads to very unclear content and thought leadership communication, which is vital for all agencies. If writers do not have a clear picture of the company’s value, then the content will reflect this and appear confusing to the reader. A value proposition helps build relevance for target buyer personas, helping to improve engagement, shares, conversions, and trust. Reason No. 3 – You Will Understand How Your Blog Can Play A Role In New Business Most agencies have come to realize that blogs are vital in developing traffic and articulating the agency's value proposition and specializations. B2B marketers that use blogs receive 67% more leads than those who do not. Many agencies, however, do not use the blog as part of the sales process, which means no leads or opportunities come through because of the blog. This can be because the sales and content marketing teams are not aligned. The blog should help push leads down the sales funnel, helping to produce qualified leads. An agency’s blog can also help provide new business teams useful nurturing content as they help prospects navigate the awareness, consideration, and decision stages of the buying process. Reason No. 4 - It Helps Align Your Content With Your New Business Goals If leads or new business metrics are falling behind, surprisingly this could be because the content strategy is not tied to the sales strategy. Before revising the sales process, performing a content audit could uncover why certain goals aren’t met. Content must aid the sales process, as 41% of businesses say curated content increased the number and/or quality of sales-ready leads. Reason No. 5 - It Will Clarify Why Blog Subscribers Are Not Reading Your Content If people that actively subscribed to your blog content are not reading it, then a content audit is desperately needed. By finding out why these people subscribed, you can start to get your content back on track. Perhaps with different leadership team members writing, blog content began to drift from its original purpose, making it no longer useful for the audience. Reason No. 6 – It Will Prevent You From Investing In Ineffective Content It is estimated that 70% of all content produced is either not utilized or is totally ineffective for the companies that produce it. The big issue is that search engines penalize sites that have large amounts of content that is not getting traction. A content audit will help you streamline your web and social interfaces and ensure that your agency invests in the kind of content that existing and new customers are looking for. In January 2017 Prosper Group is offering a two-day content audit program for agencies as part of our agency ‘Performance Improvement’ programs. Please contact firstname.lastname@example.org for more details. Tel 310 936 3774
Failure to Plan Definitely Has a Price I never worry about action, but only about inaction. –Winston Churchill “I haven’t decided what I ultimately want to do with my business, when I want to exit, how much money I’ll need, or whom to sell to. So how can I plan my exit? Besides, I don’t want to exit right now.” If you’ve said or thought this, you are not alone. Many business owners are either overwhelmed by the thought of exiting or are so busy fighting daily fires in their businesses that they assume they cannot plan their exits. If you aren’t sure about what you want from an exit or when you want to leave, why is it so important to decide to act today? First, recognize that when owners have a passive attitude toward the irrefutable fact that they will—one way or another—leave their businesses someday, they are settling for less than the most profitable exit for themselves and their families. Second, understand that preparing and transferring a company for top dollar takes time: on average, 5–10 years. Most of those years will be spent preparing the business for the transfer or, if the owner decides to sell to employees or children (two groups who rarely have any money), giving them time to earn the money to pay for the owner’s interest. The more time owners have to design and implement income tax–saving strategies, build value, strengthen management teams, and begin a gradual transfer of ownership (not control) to key employees or children, the more likely they are to reach their goals. Third, if owners decide to sell to a third party, remember that the market does not operate on their schedule and may not be paying peak prices when they are ready to sell. If the prospect of leaving your company with little to show for it is unacceptable to you, let’s look at your three options. Wait for a Buyer Owners who wait for a third-party offer for their businesses believe that one day, a buyer will contact them, negotiate a fair price, and that will be that. This is certainly a course of action, but one that flies in the face of reality. There is a pent-up supply of businesses owned by baby boomers who, given strong interest from buyers, are clamoring to sell their companies. The simple law of supply and demand implies which kind of market sellers will face. In a buyer’s market, only the best-prepared businesses sell for top dollar. The owners of those well-prepared businesses will have made the decision to prepare their companies years ahead of the actual sale. Liquidate Liquidation is a common Exit Path for owners of companies whose cash flow is declining and has little probability of improving, absent the design and execution of an alternative Exit Plan. If this description fits your company, we recommend that you meet with your tax and other advisors to do the planning necessary to create the most tax-efficient liquidation possible. Decide to Exit and Plan Accordingly Start today and take the following steps: Fix a departure date. Determine your financial needs. Decide whom you want to succeed you. Have your business valued to see whether you should sell today and/or it has the value necessary to meet your financial and other Exit Objectives. Based on your objectives and the realities of your business, use a skilled Exit Planning Advisor to forge a plan with accountability/decision deadlines. Your failure to act can be fatal to your successful exit. You and your family depend on the success of your business exit. Can you afford to fail to act? Acting today to create your best possible Exit Path is not difficult. Simply pick up the phone and call us.
Thanks to huge developments like mobile technology, social media, data and analytics, marketing is an entirely different environment. It’s almost unrecognizable compared to what it was just a few years ago. This drastically different marketing landscape has quickly caught up to many marketing communications agencies that are having a hard time adapting. These new technologies, platforms and omnichannel environments present many fresh challenges that some agencies struggle to overcome. Aside from these new obstacles, there are many of the same age-old problems that have been plaguing marketers since the beginning. Being able to identify these problems early on and being able to quickly combat them can not only help your marketing agency continue to thrive, but it can also give you an edge over competing firms that are struggling from the same woes. Here are 6 Rules that marketing communications agencies can use to adapt to the new landscape and come out on top of the competition. Rule No. 1 – Make Sure Data and Analytics Are Front and Center Of Your Process And Service Offering Successful marketing agencies will attest to the fact finding the right segment can be a challenge. In fact, 72% of marketing agencies admit they do not know what their target is, yet 59% of CFOs claim that business intelligence is their number one priority. That means that the guys at the top are willing to spend the money to learn about what’s important to their buyers. So, as a marketing agency, you also need take advantage of the funds. Invest in Data. Data and analytics tools provide great assistance in choosing the right segment. Just remember, data is not just digital information and web behavior. There is value in looking at how you are targeting customers through several different lenses. • Online searches • Social buying signals • Web mining • Crowd sourcing • Transactional data After looking at the data through these lenses, you need to sort it into usable information. • Fast data: real time behaviors used to see if a purchase is going to occur. • On board data: data found offline that can be transformed into data to reach prospective clients online. • Foundational data: data mined from your business that you use to identify your customers. Studies show that companies that use data to help target the right customers outdo their competitors by 20% in every major metric. Leveraging your current, past and future data can help you compare your options more closely than traditional market research. With the right data and proper analytics solution, you can catch valuable insight into what target source makes the best sense for your organization and will provide the most long-term growth. Rule No. 2 – Make Sure That You Rapidly Adapt To The Digital Age Today’s digital age came upon us like a whirlwind storm. Marketers had little time to learn before the training wheels came off. Before the majority of us became comfortable marketing on social media, we started hearing about Big Data and analytics tools giving birth to previously unseen insights. Yet, many of us barely had time to look before we scrambled to try and accommodate the mobile boom. Worse yet, all of these technologies and new platforms are as fast-moving as the digital age itself. What was considered “best practice social media marketing” one day can look entirely different the next day. The 2016 predictions alone call for shifting trends that make it extremely difficult for marketers to adapt -- especially because emerging “trends” are a dime a dozen. Honestly, finding the ones that actually live up to their assumed potential is rare. Case and point, a lot of marketing agencies moved so fast into social media channels that they didn’t (and most still don’t) know how to measure its ROI. In a 2016, 66% of marketers said measuring social media ROI is a struggle. Only an abysmal 9% of marketers say they can quantify revenue driven by social media. This means that most don’t even know if their social media efforts are truly effective. The fix to this is largely a question of targeting. Part of the beauty of the digital age is that the lines of communication between brand and consumers are wide open; use this to your advantage. Talk to your customers. Rule No. 3 - Prioritize Your Channels of Delivery The digital age has brought a lot of new marketing channels to agencies. Marketing agencies have to determine which channels they need to be present on (or rather, which channels their target audiences are present on), how to uniquely use each channel and how the customer journey can be fluent across these many different channels. Determining what channels your target consumers are present on is the easiest part. Simple market research or basic analytics will tell you this. You can also just ask your customers. The difficult part is understanding how each channel can be used in a way that utilizes the unique characteristics of that channel. The more marketing channels you are using, the more difficult it becomes to maintain a cohesive brand voice and image. It also makes it harder to create a seamless customer journey across each touchpoint. Studies show that 87% of customers feel that brands need to put more effort into a seamless customer experience. For example, in terms of marketing materials, a consumer wants a new experience each time he interacts with your brand on social media. Thus, simply reposting content across all channels can have a negative impact. To rectify this negative experience, narrow your active channels down to the essentials. Figure out where your target consumers are most active and hit those channels hard, while ignoring the rest (as best you can). This will help ensure that all of your efforts are targeted in the areas that will yield the greatest returns. It also helps limit the amount of duplicate copy you post on various channels, which thereby will boost engagement. Rule No. 4 – Don’t Neglect the little stuff In the digital age, and 1.96 billion people are connected to social media. Nearly 80% of the time spent on social occurs as a result of the constant connectivity of mobile devices. Despite the close-knit nature of our social media circles and constant communication, we can sometimes forget the power of small, simple and personal gestures of goodwill. In marketing, these small gestures can have a profound effect on your ability to close consistently. These gestures can include anything from a thank you note after a consumer makes a purchase, to a small “We hope you are doing well” letter when a customer is inactive for a period of time or just thanking someone for their time. Little things can make a big difference. While we may be hyper-connected, social media interactions and even e-mails can be largely cold and impersonal. That little personal thank you or other gesture can make all the difference. These small tactics can help nurture prospective leads and turn them into high value clients. When you automate the process, it takes little effort and yields huge returns. Agencies have reported returns as high as 450%, when turning to marketing automation for these and other tactics. The beauty of doing the little stuff is that it requires very little effort. If you aren’t already performing some of these simple, yet important, tasks, then it is easy to set up an automated system to issue thanks or other small messages. Sometimes these can help play key roles in understanding the consumer’s behavior and where in the marketing funnel they lie. Rule No. 5 – Don’t Just Imitate Others - Pioneer Your Own Strategies Because digital marketing is relatively new and still evolving, there is a lot of monkey-see-monkey-do between marketers. By which I mean, if one digital marketer finds success in a certain social media campaign, mobile platform or some other strategy, there are sure to be others who try and replicate similar content and results within their own organization. There is nothing inherently wrong with this approach. In fact, it is a great method for discovering new and creative content ideas and new ways to use these newer platforms. That said, it isn’t without it’s risks. A lot of marketers run into problems when they try and mirror what others do, when that other business is unlike their own. A common example of this is when B2B companies try and engage their clients and customers on social media. These companies have a knack for imitating what they see their B2C counterparts doing. But it simply doesn’t work that way. The “right” strategies often don’t translate from one business type to another. A B2B company has a completely different customer base as a B2C company, so the target audience on social media is rarely the same. B2C companies sell directly to consumers where B2B companies sell to a person who represent a business. Copying the wrong social media marketing approaches are a large reason why B2B companies acquire customers from Facebook lower rate than B2C companies (43% to 77%). B2B businesses see better results when the invest their marketing efforts into more educational based marketing like webinars and blogs. Copying the social media efforts of businesses that sell directly to consumers is not practical. The same can be true if you adopt a similar approach to a company that is targeting a different audience. Just because a company is your competitor doesn’t mean they are after the same target audience. Their product or service, while similar, may focus on a different demographic. Attempting to mirror their approach could cause you to lose engagement from the consumers you actually want to connect with. If you are looking for new content ideas or want to adopt a new strategy, look at brands or companies that target the same segment(s) and have the same current marketing objectives as your organization. They may not be your direct competitors, but if you share the same target audience, you can find new ways to attract those consumers Rule No. 6 – Test, Iterate & Pivot These days it is all about how nimble you are as a brand. Your Agency needs to make sure that you have the right USP for the brands you are marketing. Arguably, the digital age has made the need for marketers to develop a unique selling point more important than ever because consumers have access to more companies to choose from than ever before (and vice versa). Studies show that the right USP can increase conversion rates by 33.8%. Your unique selling point doesn’t necessarily have to be something you offer that other competitors don’t. A lot of marketing agencies fail to close efficiently because they assume their business offers the same services as every other agency. While this is likely true, your agency may be more adept at SEO than your competitor. Or, you may have a specific niche you operate in a lot; perhaps you market restaurants and bars very well. Once you determine your selling point, the majority of your marketing materials should mention or cater to this edge. When looking for your unique selling point, you want to be strategic. Not only do you want something that your competitors don’t offer or can’t do as well, but you also want it to be something your target audience is looking for, but can’t find from other marketing agencies. When we work with our communications agency clients in developing their brand propositions we ask the following questions to help them develop a strong USP. • What are the businesses’ strengths? • Why do customers do business with you? • Who is your competition? • What do you do better than them? Test two different USPs with Google Adwords to see which one does better. Conclusion A lot has changed and a lot will continue to change, with regards to marketing in the 21st century. The digital age has rocked marketing to its core. When it comes to the unique challenges facing marketing agencies today, it is easy to get overwhelmed and hit obstacles trying to adapt to the constantly evolving “best practices.” Digital marketing trends seem to move at light speed, which can sometimes cause marketers to take a passive, wait-and-see approach, but this stagnant behavior can lead to poor performance and growth. Sometimes, you have to take risks and jump on trends that aren’t fully tested and proven. Prosper Group will show you how to develop digital resources and leadership. We’ve already helped many top communications agencies do this. Our exclusive Digital Accelerator Program will: • Teach you a proven, effective system for putting digital into your agency's DNA • Offer a unique strategy for your growth • Help you integrate digital into your client service offering • Deliver supportive, practical guidance • Empower you to rapidly land digital projects Learn more by downloading our ‘Digital Accelerator Program PDF: http://prospergroup.net/wp-content/uploads/ProsperGroup_7.pdf
In these competitive times most agency owners don’t want to spend money on things they think that they don’t need. So why would you need an estimate of your agency’s value if you don’t expect to leave for several or many years? You may not if you fall into one of two groups: • Owners who are sure that their business exits are more than 10 years away. • Owners who are certain that the value of their companies is miniscule compared to what they will need upon sale or transfer. However, many agency owners look to the value of their businesses as the chief source of liquidity for their post-exit lives. Owners intend to leave as soon as is feasible rather than when they are completely burned-out. Therefore, most owners need to know the value of their companies now so they can be smart about creating greater business value as quickly as possible. Knowing the value of your business today is critical, whether you plan to leave your business tomorrow or in five years, for the following five reasons: Reason No. 1 - An estimate of value establishes the starting line and distance to the finish. An estimate of value tells owners where their unique race to their exits begins. The owner’s job, whether the agency is worth $500,000 or $50 million, is to fill the gap between today’s value (the starting line) and the value he or she needs upon exiting (the finish line). Based on today’s value, an owner’s race to the finish line may be shorter, longer, or perhaps much longer than expected. Once owners know how far they and their businesses need to travel, they can begin to create timelines and implement actions to foster growth in business value. Reason No. 2 - An estimate of value tests owners’ Exit Objectives. An estimate of value helps owners determine whether their Exit Objectives are achievable. Let’s assume that an owner, Kate, decides that her finish line (i.e., financial objective) is to receive $7 million (after taxes) from the transfer of her business interest. Kate wants to complete her race in three years (timing objective). An estimate of value will tell her whether the distance between today’s value and the finish line is too great to reach in three years. If the growth rate is unrealistic for Kate’s business, she must either extend her timeline or lower her financial expectations. Reason No 3 - An estimate of value provides important tax information. An estimate of value gives agency owners a basis on which to analyze the tax consequences of Exit Path alternatives. Once an owner chooses a path, the value estimate provides a basis for the owner’s tax-minimization efforts. Taxes can take a significant chunk out of a business’ sale price; therefore, the value of the company (i.e., what a buyer pays for it) usually must exceed the amount of money owners need to fund their post-exit lives. The size of that excess depends on how owners and their Exit Planning Advisors design their exits. Exit Planning, in turn, begins with knowing the company’s starting value and the distance to the finish line. Reason No 4 - An estimate of value gives owners a litmus test. Knowing how much value they need to create to meet their objectives helps owners determine where they need to concentrate their time and efforts. Instead of growing value arbitrarily, dedication to a goal may enable owners to exit sooner than owners who do little or no planning, with the same amount of after-tax cash. Pursuing Exit Plan success always begins with a starting value. Reason No 5 - An estimate of value provides an objective basis for incentive plans. As owners design incentive plans for key agency employees (e.g., stock-purchase, stock-bonus, and nonqualified deferred-compensation plans) to motivate them to increase the value of the company (so owners can work toward a successful exit), they must base these plans on an objective estimate of value. Owners and their employees need a current value (or starting line) on which they can rely confidently. The Estimate of Value Is Not a Full-Blown Valuation! We know you are thinking, “How much is this going to cost me?” However, we’re suggesting that you only need an estimate of value to establish a benchmark; you do not need the opinion of value, which might precede your transfer of ownership years from now. An estimate of value typically costs about half as much as a standard valuation opinion and is the basis for the later, complete valuation. However, it lacks the supporting information contained in a written opinion of value and is used for planning only. It cannot be relied upon for tax or other purposes. Failure to Value On some level, all owners recognize that they will leave their businesses someday. While you might not yet have a vision for the second half of your life, you must understand that exiting your company is likely to be the largest financial transaction of your life. Does it make sense to go into that transaction and the second part of your life without an objective understanding of your company’s value? An estimate of value can save precious time as you build value and pursue the exit of your dreams. If you are interested in either a ‘Full Valuation’ or an ‘Estimate of Valuation’ Prosper Group has the expertise and experience to carry out these processes. You can contact me at email@example.com to set up a call to discuss your needs.
Having a highly developed and motivated leadership team is one of the most significant ways to improve an agency's wellbeing. Structured leadership coaching programs help empower leaders, executives, and managers to achieve and surpass their goals, by becoming more inspired and inspiring leaders. Regardless of the size and discipline of your agency you will benefit from investing in ongoing leadership development and training. Here are 6 reasons why it represents a great investment: Reason No. 1 - It helps your managers make the transition to leaders. Those leaders can then lead trusting, loyal, inspired, passionate followers, whom they encourage, motivate and inspire to achieve personal, group, and organisational goals. Reason No. 2 - Leadership coaching build a greater sense of teamwork among their staff, driving improved results for your agency. Reason No. 3 -It is critical in enabling your staff to feel supported as they step up to the most senior parts of their jobs, and prepare themselves for the next step in their desired career paths. It will also help you the agency owner to more easily and effectively delegate appropriate assignments to the next level, allowing the executive to bring greater value to their team and the organisation. Reason No 4 - Effective leadership coaching programs help your senior staff create practical action plans, deliverables, and timetables for goal achievement, while helping them identify and remove the blocks to their desired achievements, outcomes and success. Reason No. 5 - It has helps your staff to become more effective at leading Up (the CEO or other “Bosses”), Across (Peers), and Down (Those they supervise, whether internal or external). Reason No. 6 - It helps you to start to design and build a legacy of leadership. At some point you may decide to exit the agency and it is vital that you have developed the second tier of leadership who are capable or running the agency themselves, or on behalf of a buyer. This will be a critical factor for any prospective buyer. We help our clients to tap into their inner purpose and passions, and connect those with their outer goals, to bring about sustainable breakthrough results. We offer leadership development programs as well as strategic counsel and other performance improvement programs to our communications agency clients. For more information please contact firstname.lastname@example.org
"You've got to be very careful if you don't know where you're going, because you might not get there." — Yogi Berra It is not always easy to interpret Yogi. In this case, perhaps he is advising you to figure out just where you are headed in your business. As you near the time when you will leave behind the daily worries and stresses of business ownership, have you defined your successful exit? Do you know where “there” is, much less how to get there? Unless you set and prioritize your exit goals or objectives, you may have too many, or they might conflict, but in either case you may not make much headway. The clearest example of a failure to set objectives may be Bill Wilson, an agency owner who recently told us that he wanted: • To leave his agency within three years (although he was ready to leave right away) • Financial security, defined as a seamless continuation of his current lifestyle • To transfer the business to his management team A quick review of Bill's personal financial statement, however, revealed that most of the income required to maintain his lifestyle would have to come from the business. Unfortunately, his business wasn’t large enough to attract a cash buyer. And, since Bill had done no ‘Exit Planning’, his employees had no funds with which to purchase his ownership interest. A long term installment note seemed to be the only answer — a risk Bill was unwilling to take. Contrast this unpalatable solution with Bill's objectives — objectives which could have been achieved had he taken the time (well before he wanted to leave the business) to establish and to prioritize his exit objectives. If, for example, an owner’s need for financial security prevails, selling a business to a third party for cash may be the best and quickest exit path. If, however, attracting a qualified third party is unlikely or undesirable, an owner may need more time to devise and to implement a transfer to one or more insiders (children or employees) that provides the owner adequate cash. On the other hand, if an owner’s desire to transfer the business to a specific person or group trumps his or her need for financial security, and his/her deadline for departure draws near, financial security in the form of "up-front" cash must take a backseat. As you can see, owners must consider—simultaneously—the three primary exit goals (listed below). Ask yourself which is your most important exit objective and rank your answers from 1 (most important) to 3 (least important): Financial security 1 2 3 Transferring the business to the person of my choice (may include key employees, co-owner or child) 1 2 3 Leaving the business when I want (could be immediately or never) 1 2 3 Prioritizing your objectives will help you choose your overall path and design your Exit Plan. For example, if you want out—soon and with cash—but your business cannot be sold today, do you wait until market conditions improve or sell now to your employees? While prioritizing your objectives is not easy, doing so gives you a framework for decision making. Start with the choices and priorities in the exercise above, but if you have any difficulty we can ask you some additional questions that will help you make your selections. When combined with an overview of some critical facts about you and your business, the Exit Planning solutions begin to crystalize. While we don’t have a ready-made Exit Planning package ready for you, we do have the background and the Exit Planning process that we believe will shine a spotlight on the Exit Planning solutions that are best for you. We’d like to sit down to talk with you about it sooner rather than later. Gathering your Exit Planning resources today can help you confirm your path to the future. You can contact us at email@example.com
Dustin McMahon spent many hours meeting with a local advisor who said he was an incentive planning expert. They discussed various incentive plan structures and chose one that Dustin liked best. Dustin gathered all of his agency’s management team together and announced, with great pride, the new plan. That was two years ago. Now Dustin is wondering what went wrong? Nothing has really changed – the company still performs at about the same level and grows at about the same rate as it did before. The key employees seem happy with the plan because they make a little more money, although a couple of them have left the company since the plan was initiated. Dustin doesn’t see the changes that he expected would result from this incentive plan. He doesn’t feel any closer to achieving his goals for the future of the business. What went wrong? We have identified four characteristics common to successful incentive plans. A strong plan should:
- be specific, not arbitrary, and in writing;
- be tied to performance standards;
- make substantial bonuses possible; and
- encourage the key employee to continue working for the company.
Agency owners often tell us that, in an ideal world, they would sell their businesses to their best, most loyal and/or most ambitious employees. Agency owners frequently dismiss this option because their employees don’t have enough money to buy the business. Is this the right decision? Is there a secret ingredient that might allow you to sell your business to one or more employees and still get the value you want and deserve?
Take Steve Sampson, the fictional owner of fictional healthcare agency, Sampson Scientific. Steve’s management team was capable and interested in buying the agency. The business had little debt and good cash flow.
When Steve confided in his advisors at an annual planning meeting that he had always hoped to sell his business to his employees but he just did not see any way to make that happen, one of their first questions was, “When do you want to leave the business?”
If Steve had answered, “Now!” a sale to employees who lack cash would have been fraught with risk. If Steve’s answer was, “I'd like to be out — both financially and as a participant in management — in five to eight years,” a well-designed Exit Plan would have made that happen—if Steve had started today.Plan Goals Any buy-out plan, regardless of the buyer, must accomplish three goals:
- Minimize the owner’s, the company’s and the employees’ risk, by keeping the owner in control of the business and the sale process until the owner receives the entire purchase price.
- Ensure that the owner receives full value for his or her ownership interest.
- Allows the owner to stay in control until full value is received.
Stage 1: Sell incremental blocks of ownership for a reasonable, or even conservative, price over several years, each for a promissory note at a reasonable interest rate. Employee purchasers pay down the note balances with some combination of earnings, bonuses and ownership distributions or dividends from the ownership they’ve acquired thus far. After a few years (depending on the company’s ability to produce cash flow) the employee purchaser will own a portion of the company free and clear. During this period the owner usually reduces involvement and delegates more responsibility to the successor owners.
Stage 2: Assuming the business continues to be profitable, paid-up owners of 30 to 40 percent of a company can present themselves as strong, stable and well-prepared buyers to secure bank financing to purchase the remaining balance of the owner’s stock.
Following this strategy, Steve’s buy-out plan kept him in full control of his business until he received all of his money. Because he maintained control, he significantly reduced the risk of not receiving full value. He successfully cashed out of his business because he did not wait to begin his Exit Planning until he was ready to leave. By starting before he was ready to leave he was able to choose his successor, exit on his timetable, and leave with the cash he wanted.Caveats:
- This plan does not work for all businesses, but can work well for companies valued between $500,000 and $5 million.
- Executing the plan takes time, usually at least five years to allow the employees to purchase a significant chunk of the company.
- This plan requires a cooperative bank aware of the owner’s intentions well in advance of the transfer.
- This plan requires a strong management team interested in owning a company financially fit enough to allow most of the available cash flow to be used to pay off the purchase debt.
A significant percentage of today’s agency owners were born between 1946 and 1964, and while no self-respecting Baby Boomer would genuflect to the traditional notion of retirement age, many are reaching a time of life associated with changes in daily focus and the realization of long-held goals. This group is part of an imminent, staggering increase in the aging population. The world’s population aged 65 and older will almost double in the next 20 years. That’s 1.1 billion people who will live and work longer than any generation, ever. For those who want to remain in the agency game, they will have many more years to do so. For those who don’t, the payout resulting from their hard work will have to be carefully planned to last even longer. Given demographic imperatives of the current generation of agency owners, the need for careful operational and strategic planning for exit has never been more compelling. And, the post-2007 “New Normal” of diminished economic growth rates, lower investment returns across the spectrum and creeping tax rates make this planning an imperative for a successful personal transition. The good news is that the kind of marketing, management, and creative skills that serve owners well often do not diminish with age. With time, owners begin to perfect their vision of an ideal “emeritus” role. The bad news: not enough of them engage in the careful management and financial planning ahead of time to facilitate such a transition or an exit. The freedom to determine when and how to exit is one of the rewards for a successful owner’s risk, hard work, and good decision-making during the life of her or his business. These owners have grown up watching the big financial holding companies expand to critical mass by gobbling up acquisitions as they put pins across the national and global agency landscape. Agencies with generalist capabilities, the right geographic and client coverage and solid financials were quickly consumed. Many successful independent agency owners could look forward to a similar holding company acquisition payday, because the multiples realized were typically attractive. Now, changes in blue chip holding companies’ expansion plans have altered the picture dramatically. Large buyers are much more inclined to consider only strategically key additions to their portfolios in the U.S. – typically deeply niched specialist firms with world-class capability in public affairs or digital specialties, for example. Yet, the “grey tsunami” will result in a larger number of agencies looking for a liquidity solution as their owners reach their individually planned exit times. In short, we are entering a period where more potential sellers will pursue fewer traditional buyers. There are still blue chip buyers looking to expand through domestic acquisition – but this group is now comprised of specialist private equity firms, smaller holding companies and larger independent agencies – as well as the dominant holding companies. So what does all of this mean for the agency owner seeking an attractive approach to transitioning ownership and realizing value?
- The external sale “beauty contest” is getting more and more competitive. To receive top dollar for a sale, a firm must be viewed as an additive strategic acquisition (niche, digital, platform firm or a required specialty such as IR; crisis; etc.).
- Buyers looking for “bargains” (and who isn’t) will have a considerable amount of leverage in this type of supply / demand situation.
- Owners will need to consider a range of exit / liquidity options, including:
- Increased operating performance to drive more wealth creation from ongoing operations
- Internal sale to a successor leadership team.
- What is the agency’s unique value to a potential buyer in today’s – and tomorrow’s – market? If the agency is not already deeply niched, what can be done over time to make it more attractive?
- In the event the agency cannot be sold in the short term, is it generating sufficient wealth for the owner from ongoing operations? What steps are necessary to consistently produce this level of profitability? Running the business for maximum profitability for a number of years increases owners’ exit options.
- In the case of an internal sale or ESOP (which can involve a longer term payout to the owner) is the agency likely to continue as a successful ongoing concern after the owner steps away from active management, requiring a successor CEO and a solid second tier of management?
- Find support to develop and implement financial and operational best practices in the firm
- Set a minimum operating margin of 20% and manage the firm accordingly
- Determine when to exit
- Identify how much money you need the firm to generate to meet your expectations
- Position a successor, or find one. Same with second tier team.
- Lock in key leaders with compelling compensation
- Set up key person insurance coverage to protect the transition
- Set up sufficient time for operations to generate sufficient value to fund the plan
When Prosper Group ask owners who they would like to transfer their businesses to, a common answer is, “To key employees.” Yet few owners see this exit path as a real possibility because they don’t see:
- How they can transfer a business to key employees who have no money.
- How they can sell today when their businesses aren’t worth enough.
How they can transfer a business to key employees when they are not capable of running it.
What owners see quite clearly are the risks of transferring their businesses to key employees. They just don’t understand how to transfer a business to these “insiders” while maintaining control, minimizing risk and receiving the value they need for their financial security. Without skilled exit planning advice, they can’t or shouldn’t.
The real concern for these owners is simple: If they sell now, they’ll lose control and they won’t get paid. And they are dead right, unless you design a transfer plan that:
- Is founded on the owner’s goals.
- Keeps the owner in control until he or she achieves all goals, including financial security.
- Minimizes the income tax consequences of double taxation.
- Includes a backup plan that provides for an alternate exit path if the transfer to insiders does not work for any reason.
- Enable insiders to acquire ownership in increments over a period of years only if they:
- Meet annual performance standards.
- Agree to commit financially to acquire ownership. (Commitment includes personal guarantees and pledging personal assets as collateral for current business debt and for a bank loan to buyout the owner).
- Demonstrate that they are capable of running the business successfully. (At outset of a plan, few incoming owners have the management experience necessary to operate a business without the owner).
2 , Five Plan Design Principles of Successful Insider TransfersIn addition to a well-designed plan, there are three conditions that support successful transfers to insiders: cash flow, time and the owner’s willingness to delegate.
- Unless the cash flow of a business is relatively consistent and capable of growing, it cannot support a buy-in.
- These transfers take five years or more just to grow the insider’s management skills and the company’s cash flow, transfer increments of ownership to the insiders (as cash flow grows), and enable the owner to use excess distributions from the business to accumulate wealth outside the business.
To create value the owner must be willing and able to transfer meaningful responsibility in all aspects of the business to the incoming owners. Certainly the owner doesn’t delegate all responsibilities at once, but must do so incrementally until his or her departure date.
It is important to note that ownership transfer to insiders usually begin before the business has a value that would set up an owner for a financially secure post-exit life. That’s why the plan design includes a performance standard or formula that requires the business to grow in cash flow or value as a condition of transferring ownership.
Also note that in designing a multi-year ownership transfer to insiders, we incorporate three guiding principles as a condition of transferring ownership:
- Minimize owner risk. This includes maintaining control and having a backup plan.
- Maintain control of the business until after the owner is certain of achieving all of his or her exit objectives.
- Obtain the value desired or needed from the transfer of ownership.