Leading companies have a good process or tool for screening potential new opportunities. This doesn’t guarantee success of good ideas but, if used properly, should keep the organization focused on the best opportunities and minimize the distraction and wasted effort of pursuing opportunities that are weak or not a good fit at this time. Generally speaking, you can’t chase all the gazelles in the herd…a shrewd hunter has to be selective.

Annual or periodic strategic planning will usually provide the foundational direction and guidance for the organization’s success in the future. However, in the interim along the way, “stuff” happens, things change and opportunities often emerge. These opportunities will get dealt with one way or another – pursued, back-burnered, killed or just ignored.

I have found there is a great deal of wasted investment in companies on chasing ideas that should never be chased or chasing ideas that should have been refined and/or defined better at the front end. It is not uncommon for individuals, teams or departments in organizations to immediately go deep in analysis and spend inordinate amounts of time and money debating, researching and evaluating potential new investments, strategies, and product or service ideas without ever having checked the basics. I advocate that a client should have readily available a “quick and dirty” evaluation tool that guides people within the company to systematically answer some important questions up front before proceeding further down the rabbit hole (or the prospective gold mine).

I have witnessed many times in companies that I have worked in or advised the inherent conflict between individuals in business / corporate development groups, sales groups and marketing groups as well as other areas of the company (including finance). Many people have what they think are great ideas about new products, services, markets, acquisitions, partnerships, etc. and they want to preserve the credit for the ideas. I don't believe any group has a monopoly on great ideas. However, ideas can get pushed down the road a significant distance “in secret” before they are revealed and before they are tested against all the key criteria for a good investment. Ideas sometimes get slammed shut before they see the light of day because they originated from what the organisation considered to be the wrong source.

Personally I think it is helpful for all employees to keep in perspective what their respective roles and responsibilities are and to generally keep from straying into other areas of work. The challenge for effective management is to provide an appropriate channel for bringing creative, innovative and potentially profitable new ideas to the surface quickly and giving employees the tools for ensuring it is a reasonable opportunity without spending much time on it before they go further. I have found that some employees and departments are not familiar with the basics of what makes for a great opportunity for the company. They may understand that it must be profitable in the end, but have not been involved in the evaluation process sufficiently to understand the other dimensions of a good evaluation. I don’t believe there is any benefit to the organization to keep the key elements of such evaluation a “mystery”. I advocate that the CFO or business development group (or whatever person or group is appropriate for a given organization) should provide direction to all employees of the expectation for initial evaluation of a new business proposal.

Even within a business evaluation or project evaluation group, there is sometimes inconsistency in the level of and standards for early screening of projects. Providing an outline of the standard or the criteria by which such proposals will be evaluated is usually appreciated by and helpful to all employees as it gives them guidance to focus their effort. It generally saves a lot of wasted time and effort and provides for a better result leading to more effective decision making.

I have used a fairly standard template for evaluation of new “anything”, whether it be a new product or service, new business line, corporate acquisition, merger, partnership, investment, expansion, or other business proposals. Over my career, I have developed a tailored or modified version of the same for many clients when requested or when I thought it would be helpful for their consideration in terms of a specific decision.

A simplified outline of that screening tool is below. Note that it is not intended that every question in the tool has a hard answer in every situation or business, but I generally find it good business practice to at least consider each and every question to determine its relevance and develop an appropriate response at an early stage of the project. This is not a substitution for a full business case which may be required for approval depending on the policies at a respected company, but is instead meant as an initial “sniff test".

Strategic fit

Must have overall fit with corporate and business strategy
- Opportunity is located within the target markets?
- Opportunity supports or enhances current and anticipated product/service lines?
- Opportunity can be supported by existing, new or improved distribution channels?
Must create some form of competitive advantage (e.g. cost leadership, differentiation) to the company’s core business

Financial

Must contribute to profitability and company value
- Opportunity is expected to generate positive cumulative discounted cash flow, including consideration of upfront (pre-commercialization) investment and incremental working capital requirements?
- Opportunity is expected to generate returns in excess of other available opportunities (with similar risks) competing for the company’s resources
- Break-even point is analyzed
Assumptions contained in the opportunity analysis must be reasonable and supportable
All risk related to the opportunity must be identified and quantified, including for example market and commodity price risk, environmental risk and regulatory risk

Market

Must provide potential growth in the company’s target geographic regions and customer markets / segments
Must provide the potential for a significant and sustainable share of a target market
Target market and identified major potential customers or customer segments for the opportunity have been identified and quantified
Competitors have been listed and details of related market shares and competitive advantages are compared and understood
Pricing strategy has been analyzed
Advertising, marketing, sales and distribution strategies have been analyzed
Potential protection of intellectual property rights (e.g. patents) have been considered

Management and Staff

Existing (or other specifically-identified proven acquirable) resources possess the required skills, experience and knowledge to assure success of opportunity

Deal structure

The legal structure of the opportunity must be consistent with the company’s objectives, particularly related to risk management
Opportunity financing and funding must fit within the company’s targeted financial structure and capital availability

Exit strategy

Must have a viable exit strategy or “choke point” established

A simple screening tool can better focus your resources on the best new opportunities, reduce internal conflict, and aid in development of commercial acumen within your organization. The tool may not provide assurance that you get a gazelle meal today, but it should help ensure you are going after reasonable prospects and not needlessly wasting your energy.

A feature article by Dwayne Coben of Coben Advisory Inc. (www.coben.ca). Coben Advisory is a specialized corporate & executive advisory firm that offers services to help our clients plan, improve, grow and/or exit their businesses.

All businesses have problems, just as all large families have some dysfunction somewhere…even if not obvious. As owners or executives, we often believe we intuitively know where the company’s weaknesses are that are in need of repair. I think that experienced individuals will most often get that diagnosis right. However, some problems are more than skin deep and require more extensive testing to ensure that the underlying problem requiring treatment is not misinterpreted by the symptoms. Similarly, it is tempting to reach for the Tylenol to kill the pain when a trip to your doctor or an x-ray might reveal something more serious.

Businesses are relatively complex structures. Sometimes you can’t fiddle with one aspect without causing issues somewhere else. Every fiddle (just like every medical drug) has its side effects. I use the analogy of an NHL hockey team to illustrate the point. I loathe a team that uses a “dump and chase” style of play or the “trap”, as I personally find that boring to watch (…everyone has their own preferences). I prefer watching more wide open skilled passing and puck possession style of games (I also like fights when warranted, but please don’t tell anyone I said that). Without mentioning team names, I have lived in three NHL cities over my life (…check out my bio for clues) that for lengthy periods of time embraced the style of hockey I loathe. Ultimately each of them moved away from that strategy to a faster, more fluid style of play to become more successful and to provide the on-ice product their fans want to see and pay for. If team management consider the problem to be “boring hockey”, the treatment is complex and different than if the problem was designated as “not enough goal scoring”. I am not an NHL hockey executive, so I won’t assert any opinions whether the underlying problem was the coach, the players, the system or something else. Each of these items required a different treatment plan or set of priorities to getting the team back to “health”.

Situations like this do not lend themselves to an easy set of “jump to conclusion” action plans. Changes to the forwards lead to possible issues with the defence. Changes with the defence lead to impacts on the goalie. Changes in the executive or coaching staff leads to impacts with relationships. Businesses are no different. Few businesses can be run with a bunch of robots or rhesus monkeys. For better or worse, people are usually involved. Sad news for the misanthrope entrepreneurs out there, but people are usually critical to achievement of strong corporate performance. In businesses, there are strong interactions between the “offense” (e.g. marketing, sales, business development) and the “defense” (e.g. oversight, business processes, systems, controls, approvals, admin) as well as the “coaching staff” (e.g. owners, executives, managers), production/manufacturing, field staff and other bits in between.

Some common problems (or symptoms?) that business owners and executives face in parts or all of their business include:

Sales are declining
Margins are shrinking
Costs are increasing
Key employees are leaving
Competitors are looming
Departments or managers are fighting
Owner is not having any fun anymore in the business

Most of these are likely caused by more than one underlying problem. Detecting the right problem to fix is often the biggest challenge to improving your business. Every company has a limited amount of resources and time, so it becomes important to right-size the effort of analyzing the problems and symptoms to mark which to focus on. You don’t want to kill a fly with a sledgehammer or swat an elephant with a flyswatter.

Over my years of experience as an executive, consultant and entrepreneur, I have found the use of a particular process or tool to be helpful for me to detect and characterize problems. The tool I often use is commonly known as a “reverse due diligence process”. It is commonly used when a company performs due diligence on itself to assess the company's readiness for sale before being presented to prospective buyers. I use it often in exit, succession and sales process engagements to not only get all the ducks in order prior to kicking off a sales process, but also to provide the owner with an opportunity to make identified improvement opportunities to his business that improve the valuation or mitigate risks. In simpler terms, in a consulting or advisory engagement, I will act as a mock buyer and evaluate the business line or company from the perspective of a buyer looking for the primary attributes of existing value and ways to add value after I buy it. I will ask all the same questions and request all the same info and documents from the client that a sophisticated buyer would ask for from a seller to determine interest, valuation and risks of a business, business line or company. From that process, I can identify gaps that detract from value, opportunities to improve business processes and value, as well as risks that can be mitigated or minimized. Generally, these improvement opportunities can be monetized to the extent practical to assist with the prioritization. High priority items are then selected by the client for more detailed evaluation, decision making, corrective action planning and implementation.

I appreciate this may sound like a lot of effort, but sometimes you get what you pay for. If your business has significant value or is the primary source of the wealth for your retirement, then a more serious effort at improvement to its value is likely a good investment. Ensuring you are fixing the right problems or issues and not just treating symptoms is worth the extra effort. There are no doubt other tools and ways to go about tackling the subject of this blog. Whatever your approach, I believe that using a systematic approach will serve you best. Just winging it is or ignoring it is valid for many aspects of life, but not usually effective for business improvement. As I have told my kids over the years, if you hear a clunk in the engine, go get it checked out. Some things in life don’t just fix themselves with the passage of time. Going back to a hockey analogy, sometimes you need to get down and dirty in the corners to win the game.

Smartly Screen New Potential Opportunities ... Chase the Best Gazelle!

Diving Head First Into Your Business Problems

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