Someone recently asked me, how does a CEO know if his/her company is at an Inflection Point? (By definition, an Inflection Point marks a point of significant change or a change in an entity’s growth curve.) From my early days working in investment banking, I have seen many instances of companies at an inflection point:
- Leading the finance and strategic planning functions of multi-billion-dollar divisions of public companies
- Sitting on the board of a 3,200 location North American retailer going through bankruptcy
- Leading strategy and M&A at a small cap public company
- Successfully prepping a tech start-up for sale
After 30+ years of doing this, I have concluded that there are three fundamental factors that indicate a company is at Inflection Point. They loosely fall under the headings of – Strategy, Management, and Money. Let us take quick look at each.
Not too long ago, a CEO came to me with the desire to sell his company. After about a month working with him and his team I came to the following conclusion – if the company did not change the way it was doing business, not only would it not sell in, but more likely it would be out of business. It is safe to say the company was at an Inflection Point (e.g., possible bankruptcy). Certainly, that Inflection Point was not the one the CEO thought the company was at when he engaged me (i.e., ready for sale). The CEO’s strategy to sell the business in the next year needed to be set aside. I shared my assessment with the CEO. To be honest, he did not initially agree with my thoughts. It was not until the company closed the quarter with a large loss that the CEO understood and accepted which Inflection Point the company was really at.
This is where money kicked in. A major change in the financial condition of a company (i.e., “money”) will indicate an Inflection Point. So, what was the Money issue: the company’s fixed costs were too high, and its revenue was too concentrated into a few client relationships nearing the end of their contractual lifecycle. Several things needed to change. In short, a significant loss (aka money) led the CEO to reassess the company’s strategy and ultimately its management (the third key driver).
For the sake of time, I will not delve into details of management change, but rest assured there were changes. Leap forward, the company has a new and more streamlined management approach and team, a far more efficient cost structure, and a more focused overall strategic direction. As a result, its profit margin went up nearly 50% from historical rates and overall profits went up by close to one million dollars. In other words, strategy, management, and money all changed.
Fortunately for the company, the CEO was open to making these changes. The CEO may still consider selling in a few years, but he is also more open and even excited about expanding the company through new service offerings, new partnerships, and even acquisitions. So, a new strategy may be emerging, meaning changes in management and a need for more money are not too far behind.
I look forward to helping the company work through their Inflection Point, the critical period in their evolution. If your company is at an Inflection Point and you are looking for an experienced strategic advisor to help you through it, or you are considering selling your business, please feel free to contact me at (310) 422-6858, or drop me a line here. I look forward to helping you.
You can read more blog articles from Bob Fiorella here.
About the Author: Robert Fiorella is part of the Inflection Master Team, a cross functional group of highly skilled Inflection Point professionals. Bob Fiorella is a VP and M&A advisor at Seapoint Business Advisors. He is also CEO and Founder of Inflection Point LLC. Bob specializes in working with all types of companies, CEOs and owners who are at an Inflection Point in their business cycle. Services include valuations, sell-side M&A advisory and strategic business consulting (e.g., fractional CFO/COO, board advisory roles, etc.). Bob enjoys working with CEOs and business owners who recognize the need for and the value of a strategic advisor.
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