If you know me, or have read this blog for any length of time, you know that I believe all great leaders are also voracious readers. In fact, I would go so far as to say reading is simply a necessity if you’re serious about leadership. I’m constantly asked for reading recommendations, and rather than provide you with the current best seller list du jour (you can get that anywhere), I’ve compiled a list of 20 leadership books everyone should read, but may not have. The list below (in no particular order) is comprised of leadership lessons from Ancient History, US History, Religious History, Military History, and yes, I threw in a few of my favorite business business classics as well. Enjoy…

1. The Founding Fathers On Leadership - There are great lessons to be learned from those who placed there lives at risk to give birth to a nation founded on the ideals of liberty and freedom. If you read this book and don’t find inspiration to up your game, then it’s time to do some serious thinking.
2. The Bible - Whether you’re religious or not, there is simply no greater blueprint for developing wisdom, discernment, humility, and every other leadership trait known to man. The leadership examples outlined in Scripture are simply second to none.
3. Lincoln on Leadership - Many regard Lincoln as our nation’s greatest president, and while I happen to personally lean towards Washington, there is no disputing Lincoln’s stature as a great statesman and leader. Coming from a dysfunctional family, enduring a long line of personal and professional failures leading up to his presidency, and having to deal with a nation divided by civil war, Lincoln’s accomplishments as a leader are nothing short of remarkable.
4. On Becoming A Leader - Two words – Warren Bennis. Having the opportunity to get to know Warren has been a great gift to me, and reading his thoughts on leadership will surely be one for you. Spending time gleaning insights from the man many refer to as the father of the modern practice of leadership is time well spent.
5. The Essential Drucker - Peter Drucker was the most noted management thinker of his time. This book combines several of his best pieces in one volume, and is a must read for anyone looking to understand organizational, operational, or cultural management theory. I had the chance to meet Peter on two different occasions. I didn’t know him well by any measure, but the brief encounters created a lasting impression.
6. Bonhoeffer - Few men have aligned their beliefs with their actions in the way that Dietrich Bonhoeffer did. A brilliant theologian hanged by Hitler, Bonhoeffer’s life is a testimony of ethical conviction that many of our leaders today should go to school on. This is a gripping read that you won’t be able to put down.
7. Serve To Lead - If you’re interested in servant leadership, then this book was written for you. My friend Jim Strock has created a manifesto that is in my opinion the preeminent work on the subject. This is a must read for anyone in a leadership role. By the way, Jim’s book on Reagan is also first rate.
8. Washington: A Life - A life study in character and doing the right thing. A man who could have been king, but wasn’t interested. Everything about George Washington is a case study in leadership. This book is also extremely well written and gives a vivid account of our nation’s first President.
9. Hard Facts, Dangerous Half-Truths And Total Nonsense - Jeffrey Pfeffer and Bob Sutton take aim on popular business theory buy unwinding six widely accepted business theories. If you’re one who likes to debunk tired rhetoric and practices (I am), you’ll love the candor and practical intelligence of this book.
10. Lone Survivor - This book chronicles the story of Operation Redwing as told by SEAL team leader Marcus Luttrell – the lone survivor of the operation. I read this book in a single sitting and found it to be a gripping account of courage, duty, honor, and service beyond self.
11. Xenophon’s Cyrus the Great - If you struggle with leading in a complex culture, then you’ll find there is much to be gleaned from Cyrus the Great. This is perhaps one of the earliest accounts of leadership, but one of the most powerful. To conquer a nation is one thing, to gain their respect and lead them with benevolence after the fact is quite another. This is a fascinating read.
12. True North - Bill George, former CEO of Medtronic provides a simple step-by-step guide for being an authentic leader. This book is a great help for leaders who desire to not live in emotional or intellectual conflict. If you need help in aligning vision, values, strategy, tactics, expectations, and outcomes then this book is for you.
13. Leading Change - Being a Harvard Business School Professor doesn’t automatically qualify you to give leadership advice. That said, this rule doesn’t apply to professor Kotter. This book uses real world case studies to break down the elements that must be identified and managed in order to lead successful change. If you or your organization struggles with change, then this book needs to be on your reading list.
14. EntreLeadership - Most people think of Dave Ramsey as a commentator on personal financial advice. True, but Dave is also a brilliant businessman, who oozes wisdom and offers sound counsel to anyone attempting to be a better leader. This is a relatively new book, so if you haven’t read it yet, make sure you do.
15. First, Break All The Rules - I have not had the opportunity to meet Marcus Buckingham, but I’m a huge fan. Most of you know that I have long believed that while conventional wisdom might be conventional, it rarely constitutes wisdom. In this book Buckingham flips conventional business theory on it’s head and challenges you to reexamine how you look at the world. This is a must read book for any leader.
16. George Washington’s Rules of Civility - No leader in history worked on building character more than George Washington. Character was more than a trait, it was a discipline of study for Washington. This wisdom in this book, is in my opinion, has regrettably all but disappeared in today’s world – regardless of what you observe around you, leadership is at its best when civility, character, on honor are visibly present.
17. Robert E. Lee on Leadership - Lee was not only a great leader, but he was a true gentleman with character beyond reproach. Leadership lessons from General Lee’s life can be used in virtually any situation during any era. A must read for all leaders.
18. Churchill on Leadership - Winston Churchill is one of my favorite leaders of the 20th Century. A man of both keen insight and intellect, but also a humble man with a great sense of the importance of his role not only to the country, but to the world in which he lived. This is a timeless account of a very principled man whose leadership may have just saved the world.
19. Exceeding Expectations - This book contains leadership lessons from retired Air Force General Bill Looney. General Looney is a leader who knows something about exceeding expectations. He did it himself during a career that spanned 4 decades, but most importantly, he inspired others to do the same. This book is very readable, and has very actionable advice for leaders.
20. Benjamin Franklin’s The Art of Virtue - This book is Benjamin Franklin’s personal guide for how one should live their live. Much like Washington’s Rules of Civility above, it’s a masterclass on character.

If you have any comments I’d love to hear them. If you have any books you want to add to the list feel free to do so as well.

Have you ever noticed how the best leaders also tend to be the most curious leaders? Great leaders simply aren’t satisfied with what they know. They possess an insatiable curiosity for discovery and learning – they are in constant pursuit of what they don’t know, and what lies ahead. Real leaders are not nearly as concerned with attainment (stasis) as they are with betterment (change). Since the dawn of time the world has been shaped by leaders who understand that curiosity is the gateway to the future. So my question is this – How curious are you?

Among many other things, curiosity helps frame vision, advances learning, fuels passion, and drives innovation. Curiosity often inspires the courage to discuss the undiscussable, challenge current thinking, deviate from behaviors accepted as normal, and to do what others previously thought impossible. The best leaders understand that usual and customary are not necessarily synonymous with healthy and thriving. The real key to curiosity begins with an open mind – a recognition that those who think differently aren’t inferior, nor are they a threat. An open mind is a sign of confidence which allows leaders to recognize diversity of opinion leads to better thinking and better outcomes.

Here’s where I’m going to throw you a curve ball – while great leaders tend to spend most of their time being externally focused, I want you to turn your curiosity inward and become introspective for a few moments. It was Socrates who said: “The unexamined life is not worth living.” When was the last time you did some serious self-examination on how your curiosity, or the lack thereof, is impacting your ability to function as a leader? Be curious enough to answer the following four questions about yourself:

1. Are you making a difference? Why should anyone be led by you? Great leaders answer this question with their actions on a daily basis. If you’re not making a difference, you’re not leading. If your actions are not directly contributing to the betterment of those you lead, then you need to become curious about how to make some very real and meaningful changes.
2. Are you growing? If you’re not growing as a person and as a leader, then it’s very likely those under your charge are following your lead. I’ve often said it’s impossible for a leader who is not growing to lead a growing organization. Nobody is too busy to learn. In fact, you don’t have the time not to learn. Leaders who don’t value learning will quickly be replaced by those who do.
3. Is your curiosity starting conversations, or your lack thereof shutting them down? If your ego is messaging you have all the answers, and that your way is the only way, then why would anyone ever be inspired to pursue change and innovation? A leader who doesn’t encourage others to challenge their thinking isn’t a leader – they’re a dictator. Dictators suppress individual thought and new ideas, while leaders encourage it at all costs.
4. Is your curiosity attracting talent, or your lack thereof chasing it away? A leader’s ability to seek out and embrace new ideas will serve as a magnet for attracting the best talent. The best talent desires to be a part of a culture that encourages contribution rather than stifling it. If you’re the leader who looks around the organization and asks “why can’t we attract better talent?” it’s because you value a compliant workforce more than a talented workforce. Real leaders don’t care who is right, they care about what is right – never forget this.

Bottom line – don’t settle for what is, use your curiosity to think what if? and seek out what can be. Thoughts? I’m curious…

In the text that follows I’m going to poke holes in a process generally accepted as productive, when it rarely is. I’ll likely take some heat over this, and while this post works off some broad generalizations, in my experience having worked with literally thousands of leaders, they are largely true. More than $60 Billion dollars is spent each year in the U.S. on employee training. More than 25% of those dollars are spent on “Leadership Training.” Here’s the thing – when it comes to leadership, the training industry has been broken for years. You don’t train leaders you develop them – a subtle yet important distinction lost on many. Leadership training is alive and well, but it should have died long, long ago…

An Overview of The Problem
My problem with training is it presumes the need for indoctrination on systems, processes and techniques. Moreover, training assumes that said systems, processes and techniques are the right way to do things. When a trainer refers to something as “best practices” you can with great certitude rest assured that’s not the case. Training focuses on best practices, while development focuses on next practices. Training is often a rote, one directional, one dimensional, one size fits all, authoritarian process that imposes static, outdated information on people. The majority of training takes place within a monologue (lecture/presentation) rather than a dialog. Perhaps worst of all, training usually occurs within a vacuum driven by past experience, not by future needs.

The Solution
The solution to the leadership training problem is to scrap it in favor of development. Don’t train leaders, coach them, mentor them, disciple them, and develop them, but please don’t attempt to train them. Where training attempts to standardize by blending to a norm and acclimating to the status quo, development strives to call out the unique and differentiate by shattering the status quo. Training is something leaders dread and will try and avoid, whereas they will embrace and look forward to development. Development is nuanced, contextual, collaborative, fluid, and above all else, actionable.

The following 15 items point out some of the main differences between training and development:

1. Training focuses on the present – Development focuses on the future.
2. Training focuses on technique – Development focuses on talent.
3. Training adheres to standards – Development focuses on maximizing potential.
4. Training focuses on maintenance – Development focuses on growth.
5. Training focuses on the role – Development focuses on the person.
6. Training indoctrinates – Development educates.
7. Training maintains status quo – Development catalyzes innovation.
8. Training stifles culture – Development enriches culture.
9. Training encourages compliance – Development emphasizes performance.
10. Training focuses on efficiency – Development focuses on effectiveness.
11. Training focuses on problems  - Development focuses on solutions.
12. Training focuses on reporting lines – Development expands influence.
13. Training is mechanical – Development is intellectual.
14. Training focuses on the knowns – Development explores the unknowns.
15. Training is finite – Development is infinite.

When it comes to current and future leaders, training will place them in a box, while development will free them from the box. If what you desire is a robotic, static thinker – train them. If you’re seeking innovative, critical thinkers – develop them. I have always said it is impossible to have an enterprise which is growing and evolving if leadership is not. What say you?

Few things highlight great acts of selflessness and heroism more than tragedy. This weekend’s helicopter crash in Afghanistan was a horrific loss for the families of our fallen warriors, but also for our nation as a whole. The men who perished in the crash were in fact our nation’s best. They were courageous men who placed service above self, who went places and did things that most of us could never conceive of, and who died to protect our freedom and way of life. What I’m struggling with is whether or not as a country we are deserving of their sacrifice…

I spent a great deal of my weekend just watching people. We are a nation at war, a world in economic crisis, a planet in moral decay, and yet most people I observed just go through the motions of their daily lives seemingly void of what happens beyond the shopping malls, golf courses, and various other forms of alternate reality. I’ve been feeling for quite some time that people are disconnected from any reality that isn’t immediately visible to them, and I’m increasingly troubled by the cavalier attitudes of the those in “leadership.” Yet in times such as these there are still men and women willing to make the ultimate sacrifice so that others may live their lives and exercise their individual freedoms. We lost some of these extraordinary men this weekend, and I hope their loss jolts us from our fog of ignorance, apathy, and naiveté.

The sad reality is that human nature adversely affects our perspective in that service is often undermined by short-sighted self interest. What most people intuitively understand, but fail to keep at the forefront of their thinking, is that our personal success and fulfillment will be much more closely tied to how we help others than what we do for ourselves…While there are many motivating factors which underpin a leader’s decisioning, nothing is intrinsically more pure, and more inspiring than the call to serve. The dedication and commitment required to be a true servant leader requires a level of personal sacrifice that can only be instilled by a passionate belief in a greater good…something beyond one’s self. As a nation we need to honor this weekend’s loss by living-up to the example set by our troops. We need to move away from self-interest and toward service. The good news is greatness overcomes tragedy, and the power of a lasting and honorable legacy can fuel greatness that spans generations.

Between ongoing military conflicts and wars, brutal acts of dictators, famines, droughts, violent flash mobs, riots, the frequency of economic calamity, and the almost daily forms of political hi-jinks and chicanery, it is impossible to view the current state of world affairs and not be troubled. Yet most people act as if nothing is wrong, and that everything will be okay. Will it? Perhaps, but of one thing I’m certain – we’ll never return to the world we knew growing up. What’s particularly troubling is that our children and grandchildren may never experience the innocence and charm of the childhoods we knew.

Other than in its creation our world has never been perfect, and we’ll likely never experience perfection going forward. That’s okay, and most of us can accept that fact. What’s difficult for me is that we live in far too dangerous times to exhibit such callous disregard for anything other than ourselves, and if we as a nation don’t wake-up to this fact we will continue to see more chaos. Our nation was built on the high cost of sacrifice by those willing to see beyond themselves, and today it is defended by such men and women. But know this – they cannot preserve ideals that we ignore, do not honor, or refuse to embrace. Hoping everything will get better is not the same thing as doing something about it.

In a time where our world is starved for those who take action on behalf others, if nothing else, let us honor those who did just that with their sacrifice this weekend. My advice is simple, don’t pretend everything is okay and ignore the examples of heroism, but rather pray for our military and their families while keeping them in the forefront of our thoughts and actions. The more we adopt a servant’s heart and a warrior’s commitment and discipline the better off we will all be. The following links will take you to just a few of the organizations’ who would gladly accept your contribution of money or service. If you cannot do either of those, at least honor our troops and their families by not forgetting what they give for you at such great cost to themselves and their loved ones.

• Navy SEAL Foundation
• EOD Memorial Foundation
• Ranger Memorial Foundation
• Special Operations Foundation
• Honor the Fallen

If you want to comment or offer support to our troops and their families via this platform I’d encourage you to do so.

“Managing Up” is a great catch phrase and an interesting concept – it’s also a practice that can get you in deep trouble rather quickly if misunderstood or misapplied. Many people would say the purpose of managing-up is to have the by-product of your efforts enhance the work of those you report to. While I have nothing against this concept (I call it doing your job), I do have a problem with the reality that many practitioners of managing-up miss the point altogether. When the practice of managing up gets confused with promotion of self-interest, brown-nosing, deceit, manipulation, the gymnastics of corporate climbing, or other mind games, a good theory rapidly becomes twisted resulting in a false and dangerous reality.

While the premise of “managing-up” is sound, the reality of how it’s most commonly implemented is representative of everything that’s wrong with business today. It’s human nature to attempt to control circumstances where possible. It’s also quite normal to desire to position yourself well with those you report to. That said, it’s important to understand the realities, rules and boundaries associated with organizational structure. Newsflash – as much as you don’t want to hear this, there is a good reason why you’re reporting to someone else – you’re probably not ready to be the boss yet.  

Here’s the thing – the best way to be looked upon favorably by those you report to is not through various charades and other forms of skulduggery, but by simply doing your job and serving them well. When the emphasis of your efforts shifts away from others and to yourself you have placed yourself on a very slippery slope. If you want to move up in the organization let it be the quality of your work that catapults you upward, not your skill in manipulation. If your timetable for career acceleration isn’t matching up with that of your employer, surface your concerns with them in a straight-forward fashion, don’t revert to amateurish corporate hi-jinks.

If I might be so bold, it’s not your job to manage your boss. Most good leaders love to be challenged, but I don’t know to many who like to think their being managed by subordinates – there’s a subtle but distinct difference. Your responsibility is to do the job the way those above you want it done, not how you want to do it. Granted, in a perfect world there would be alignment between the two, but alas, the world is not perfect. When it comes to enhancing the efforts of those above you, I would encourage you to think about it like this:

• Engage – Yes
• Collaborate – Yes
• Challenge – When needed
• Advise – Where appropriate and value is added
• Object – When it’s the right thing to do
• Loyalty – Until it’s no longer earned (if you can’t be loyal – go work for someone else)
• Manage – NEVER  

There is little debate that some subordinates are more intelligent and gifted than those above them. In fact, if you’re lucky enough to be considered a high potential in your organization, you might want to give your boss some credit as the best leaders make every attempt at building their organizations with people who are brighter and more talented than they are. This is a laudable practice that should be admired by workers, not resented. If your work doesn’t speak for itself, or if it does and isn’t being recognized, rather than play silly games, move on honorably and look for a better fit.  

Thoughts?

What would you do if you didn’t need to work? Golf, travel, volunteer, spend time with family and friends, teach, go into politics – the list of options are virtually endless…A friend of mine called me today, told me that the sale of his business had closed, and that he had enough money to never need to work again. He informed me he had put together a list of people he respected and was calling to ask what I would do if I didn’t have to work again. I was pleased to have made his list, was impressed with his logical pursuit of advice and counsel, but wasn’t at all surprised that he was searching for a bit of direction. While many entrepreneurs tirelessly seek their exit by disposition, few have spent a great deal of time planning what life after work looks like. In today’s post I’ll share a few thoughts on planning for the future…

I want to begin today’s post with an excerpt from my book “Leadership Matters…The CEO Survival Manual:“

“By the time you reach the CEO level you should be striving to move beyond success and towards significance. You need to use your network, your wealth, your experience and intellect, as well as your passion to create a legacy that transcends your title…Having the advantage of hindsight, I can say with great certainty that who you are a a person is infinitely more important than the job you hold. There are few things in life as thought provoking as witnessing what by all outward appearances seems to be a successful executive, but as you begin to peel back the layers of their carefully crafted veneer you quickly come to realize that they are little more than an empty, bitter, and frustrated person. They work their entire career chasing some illusive form of fulfillment only to fade into the sunset with nothing more than an empty lifetime of regrets as their reward.”

While my friend is the farthest thing from the illustration provided in the aforementioned quote, I have seen far too many people fall into this category. My hope in authoring this post is to have you adjust your thinking when it comes to the definition of success. My clients usually tend to be successful individuals prior to finding me. My goal is to simply help them leverage their success into significance over the course of our dealings. The sad reality is that far too many people either confuse success with significance, or they are so focused on success that they are actually blind to the meaning of significance.

Just take a look around and you’ll see that most people use their knowledge, resources, and experience to acquire things in an attempt to satisfy their personal desires, which in their minds constitutes success. Contrast this with the people that use their knowledge, resources, and experience to serve and benefit others, which by my standards constitutes significance.

Sure, for those “who get it” success and significance are one in the same, but for most professionals success begins and ends with the achievement of a certain list of personal goals with little regard to the impact on others. These people confuse success with significance, and regardless of their wealth and professional accomplishments, they won’t accomplish the true greatness that only comes through making significant contributions to something other than one’s self. I don’t care how your resume reads, what your net worth is, or what your W-2 shows…what I care about is your motivation, and what you do with what you have.

I am always impressed by those who choose a life of service over personal glory, or those who understand how to leverage their personal success into significance. Most of my clients have acquired significant material possessions…they just don’t live their lives according to a “he or she who has the most toys wins” philosophy. They don’t give because their accountant told them to, or for estate planning purposes, they give to make a difference. They don’t throw trivial contributions to a variety of charities to see their name appear on donor’s lists, they make substantial contributions (usually with little if any self-promotion). It all boils down to motivation…are you solely seeking to have fun, fame, fortune, and recognition, or are you seeking to serve and benefit others with what you have?

It is my opinion that when you start to define your personal success by the value you add to the lives of others you have arrived as a mature human being who possesses true influence and has become a person of significance. My challenge to you is this…set the chinning bar very high for yourself by reevaluating your goals and objectives to insure that you are on a path towards significance. Don’t allow yourself to become blinded by your success, rather leverage your success in an attempt to make a lasting and significant legacy for which you and your family can be proud.

So, what would you do if you never had to work again? C ‘mon you know you’ve thought about it – share your thoughts in the comments below…

While my philosophy on valuations hasn’t changed in years, my feeling as to their importance has. Valuations are always a dicey proposition, but even more so given today’s business climate. I can’t think of a time in recent history where having third party validation for your valuation metrics has been more critical. Over the years I have particpated in the M&A process from virtually every angle possible. I have been a principal of a company being acquired, as well as a principal of a company conducting acquisitions. I have also served as an executive working on both acquisitions and dispositions teams, and as a professional advisor representing both the buy-side and the sell-side. Having sat on all sides of the acquisition table it has been my experience that regardless of approach, style, timing, culture, synergy, supply/demand drivers, or any other catalyzing factor, the transaction will eventually boil down to valuation metrics.

When I’m on the buy-side of the table I’m obviously looking to drive down valuations to make accretive purchases that provide a solid return on investment. Conversely, when I’m on the sell-side of the table I attempt to secure the highest valuation possible in order to maximize my return on equity. It is easy to see and to understand the divergent interests in play between buyer and seller. Thus when both the buy-side and sell-side parties are in alignment on valuation metrics and philosophy the transaction in play will have a certainty of execution that does not exist when there is either a philosophical gap or a large pricing delta between the bid and the ask. Regardless of which side of the table you sit on, the best way to close a gap in valuation is not by continuing to hammer on the financial metrics in a vacuum, but to rather use non-financial metrics to justify movement in valuation pricing.

While I have always placed a strong emphasis on valuation, I perhaps place an even greater emphasis on the quality of the employees, the client base, the product and service mix, the reputation of the business within the market place, the character of management and the integrity of the management process, current trends and future forecasts of the competitive landscape, brand equity, mind share, etc. Acquiring a large revenue stream that is also a poorly run organization simply results in a much “larger” headache. Simply put, building critical mass is not the same thing as building an excellent organization.

Unless you’re considering an acquisition based upon nothing more than intellectual property value or to exploit break-up value, strong consideration must be given to the recognition that there must be an excellent cultural and organizational “fit” in order for any acquisition to succeed. By “fit”, I simply mean a similar set of values and practices regarding the actual running of an ongoing business: business ethics, work styles, work ethic, a vision for the future, perpetuation objectives, leadership styles, and so on. It is the valuation of the non-financial metrics described in the last two paragraphs that should be the major influencing factors in your decisioning behind the justification of the final valuation.

Now that we’ve discussed the major influencing factors behind how to negotiate movement in valuation I want to give you an overview of what I believe is the “right” way to arrive at the “right” number to begin with. There is an abundance of available data on common industry rules of thumb concerning “multiples” that can be used to estimate the value of a business. However, while multiples may be useful in providing an immediate ballpark of a business’s value, they do not substitute for a more comprehensive valuation approach. Multiples are shortcuts to value based upon the simplification of more in-depth valuation methodologies.

The use of multiples as the primary valuation methodology is equivalent to the business plan that is written on the back of a napkin.  This is primarily true because no understanding of the data underlying the multiples has been performed, and thus neither the data integrity nor comparability with the subject business can be evaluated. Valuation multiples provide a rough guideline for the price of the average business in a particular industry, but often without due consideration given to the unique attributes of an individual business (geographic location(s), current competitive landscape, current economic environment, etc.).

I have always believed in providing open, honest, fair and full disclosure of how I value an organization. In order to insure that both buyer and seller model a transaction that is fair to all parties, and economically viable going forward, I developed a blended valuation approach that takes into account a variety of valuation methods that is weighted to the unique circumstances of a the particular business and the market timing of the transaction. I have successfully used this algorithmic valuation methodology to establish a fair price for a business. The following inputs are a representative sampling of some of the factors that we weight in our calculations:

1. Pre-tax Cost of Debt (PD) is the Company’s marginal cost of borrowing long-term funds.
2. After-tax Cost of Debt (AD) is the cost to the company of borrowing money after factoring in the benefits of the deductibility of interest.
3. Risk-free Rate of Return (RF) is the return an investor would require at the present time to invest in a long-term security with essentially no risk. The closest indicator to a risk-free long-term investment is a 30-year U.S. Treasury bond.
4. Equity Risk Premium (EP) is the historical premium that investors have required to invest in stocks over the returns that were available on risk-free treasury bonds at the time.
5. Integration Analysis (IA) is the estimation of both hard and soft costs projected for post integration activity as well as any projected cost savings due to enhanced leverage or economies of scale attributed to operating activities.
6. Beta (B) represents the volatility of an individual stock (as a result of the risk of the underlying business) relative to the volatility of the overall stock market. A beta of greater than 1.0 means the stock is more volatile than the market in general; less than 1.0 connotes a stock that fluctuates less than the overall market.
7. Small-Company Premium (SCP) is the incremental return historically required by investors in small stocks over the return required to invest in the market overall, after considering the impact of beta.
8. Company-Specific Premium (CSP) is the incremental return required on early stage companies and those with extraordinary risk characteristics over the premium required on equity securities in general.
9. Growth (G) is the estimated growth in the cash flows that can be sustained in perpetuity. It is important to understand that this number must be small, i.e., 0% to 3%, because of the underlying assumption that this growth occurs forever. As an example, many companies claim that they can grow at a rate of 10% per year indefinitely. However, if a company with revenues of $25 million today grew at 10% annually for 40 years, it would have revenues of over $1 billion. Very few companies with current revenues of $25 million will ever become $1 billion companies.
10. Capital Structure (CS) is the percentage of debt and equity that the company should operate with over time given the norms within its industry. This may differ from the existing capital structure of the company.
11. The Weighted Average Cost of Capital (WACC) is a function of the capital structure in that it is the after-tax cost of debt times the percentage of equity in the capital structure.

At the end of the day it is a combination of financial and non-financial metrics that will determine the valuation (let’s not forget timing and positioning). Post valuation, and post acquisition, it is the solid operating skills and cohesiveness of management (or lack thereof) that will determine eventual success or failure of the acquisition.

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My advice: transactional motivations aside, have your business valued frequently (formally or informally) as a strategic planning tool. Few things will give you better indication as to the success of your business model than seeing how valuation is impacted.

Do CEO Surveys constitute a reliable bellwether, or are they little more than well packaged corporate propaganda pieces? The answer is yes on both accounts. Not only does N2growth conduct CEO Surveys, but so do most other consultancies. It has been my experience that the determining factor in whether or not CEO surveys are reliable can be found solely in whether or not the data is being published for external consumption. In today’s post I’ll share some thoughts about how to discern the value (or lack thereof) of CEO surveys.

While today’s topic should be obvious to all, I find that for many it’s very easy to get caught-up in reading for the sake of reading, rather than understanding what they’re reading, and truly discerning the value of the content being consumed. While good and honorable intentions may exist behind externally published surveys, I have always found them to be of very little value.

Externally published surveys tend to consist of high level, watered-down information full of caveats, posturing and spin. CEOs being publicly quoted often find it difficult to be candid. Their need to balance what’s being said against the fear of unwittingly making forward looking statements, raising the ire of disgruntled shareholders, attracting negative attention from the media, disclosing sensitive information to competitors, giving analysts the wrong impression, or creating regulatory or legal risk simply challenge the credibility of many externally published statements attributed to individual CEOs. Attributed quotes tend to be understated, but mostly positive, while negative statements tend to be generic references to aggregated group sentiments or statistics, or pointed toward “other” companies.

A perfect example of the premise stated above can be demonstrated by reviewing a recent CEO Survey published by PricewaterhouseCoopers in which you’ll find generic negative references like: “The percentage of CEOs who were ‘very confident’ about their one-year revenue growth prospects dropped to 21%, the lowest level in six years.” You not only won’t find any CEOs names attached to this statement, but more importantly there is no supporting information provided for this statement that would allow readers to determine whether or not it bears any relevance or impact upon their individual circumstances. All a reader can discern from this statement is that CEOs realize that we are in a tough economic environment…boy, that’s sure enlightening and helpful.

Here’s another brilliant observation contained in the PWC survey: “Each CEO faces different challenges, but all want to meet the acute demands of survival, preserve the advantages that make them competitive over the long-term, and ensure that their business models are prepared for a return to growth when it comes.” Duhhhhhh.

I’m not suggesting that as business leaders you shouldn’t consume these reports and surveys, but that you have the discernment to recognize them for what they are. However I would suggest that a better use of time is to conduct your own informal CEO surveys. Your audience/respondents should be comprised of the CEOs of your customers/clients, vendors, suppliers, partners, lenders, investors, etc. By interviewing relevant constituencies you will not only receive useful first-hand information that is candid, but you’ll also improve the relationships most critical to the success of your enterprise.