There is a direct line that can be traced from the quality of your business to its underlying value. So if you are raising equity to grow or looking to cash out to private equity and hit the beach, the secret to maximizing the share price is simple—Build the best business you can. While this might sound boarder line flippant, we here at Private Equity Primer like to periodically provide people with insights on doing just that—building a better business.
Our inspiration this week comes from Chris Kyle’s autobiographical book American Sniper (recently made into a movie). Kyle was a Navy Seal sniper. He saw multiple tours in Iraq and is on record as the most prolific sniper in American Military history, with over 160 confirmed kills. While not a book on business, leadership or management, Kyle’s book is filled with insights on how effective organizations are run. His autobiography provides a glimpse into a segment of our country’s armed forces that is filled with the best and the brightest tackling some of the hardest missions. At PE | PRIMER we look to learn from the best regardless of their arena of performance.
Here is what we took away from Kyle’s book in terms of building the best business you can:
Training Is Paramount for Success. Invest in It: It is no secret that Navy Seals are well trained. By now their training, its intensity, and results are well documented. By empowering every operator of the Teams with the same base knowledge and skills that are required for their profession, they empower their workforce for success. Seals go into war zones and work with Seals they have hardly meet before and do so with faith that they will succeed at the mission’s objectives and come home alive because they have the necessary base level of training and skills.
Some companies feel like training is a waste of time and money. They try to save both by weighting their hiring towards a skills based hiring process, looking for key words on the resume and industry jargon in the interview to index prior knowledge. They think that this replaces or reduces much of their training needs and associated costs. The Seals hire based on a base line of capabilities but they weight their selection on a candidate’s capacity to learn and adapt. When they hire they do not assume the new hire knows unless they have gone through training. Training empowers the members of a team to have faith in their teammates and establishes a unifying knowledge. Invest in high caliber training for your employees if you want a powerful workforce.
Successful businesses invest in their employees. Look at Starbucks. Starbucks does not assume that if you were a barista for a year at the local coffee house that you know how to serve their customers. They train you to ensure that you have the same knowledge as all other employees on the floor. This was no different than when I worked in the capital markets. My first employer provided three months of hands on finance and accounting training to new hires to ensure we all were operating off the same base knowledge. Nor is training one time, static, or reserved for just new hires. It should be on going at all levels, just as continual training is a core tenant for the Seals.
Train your employees to be the best and set high standards for performance and your human capital will become a competitive edge within your industry.
Empower Your Employees to Take Ownership of Problems: Kyle was a sniper and was ordered to watch over and protect the ground forces going house to house in Iraq. His orders were to create a sniper hide on a roof and protect his fellow soldiers from there. The insurgency in Iraq was urban warfare and Kyle felt that at times he was more effective in moving with the Marines on the ground. He raided houses with them. In doing so he saw where they were underequipped (explosives for knocking down doors) and where they were undertrained. He took it upon himself to get the Marines supplied with entry charges and to teach them what he knew about proper entry and how to clear a house the way Seal’s clear buildings. Kyle’s mission was to protect the Marines on the ground. He did not let his title and preconceived or narrowly defined role as a sniper get in the way of most effectively completing his goal and the mission.
Empower your employees to own problems and devise solutions. This has been a central tenant of successful companies for decades. Toyota’s version of this is Andon, or the ability of any worker on the manufacturing floor to pull an emergency cord to notify management of a production and quality problem. Top management at Google and Pixar often speak to the Andon process as a critical pillar of their firm’s success as it breeds a culture of ownership and problem solving. Organizations with empowered problem solvers tend to address issues more timely, have better customer service and satisfaction, and have lower attrition rates—all attributes attractive to potential investors.
The Best Want to Work with the Best: Kyle briefly discusses the now infamous Seal Team Six in his book. He says in hindsight he wished that he had applied to join what he called the elite of the elite. Even though he was living his dream by seeing lots of action in Iraq, Kyle gave it some thought about trying out and joining Seal Team Six.
This is a case of the best wanting to work with the best. The phenomena of top performers wanting to work with other top performers can be seen in the business world at places like Google and Goldman Sachs. Why? Because top performers seek out the best to learn from, to share ideas, and experiences. By pushing one another to be better than the day before they improve themselves and those around them.
So do not be afraid to hire the top performers. You may have to pay them more but they will produce (i.e., deliver an ROI) and attract other top talent to your organization as well. Hiring top performers often translates into greater operational efficiencies or in some instances greater sales. All of which are attractive to potential investors.
Your Goals Are Important, So Set Them: Kyle ultimately chose not to apply for Seal Team Six. He was not afraid of the rigorous selection process. Being a Seal, he welcomed it. Rather he was already living his dream as a sniper. Had he transferred to another Team, he would have to give up being a sniper at first and work his way up from the bottom. He would have had to re-earn that sport as a sniper. Being a sniper was what he wanted to do with his career. The act of doing was a far greater motivator than the growing prestige that Seal Team Six has experienced in the Global War on Terror.
In your business, set your goals and understand your underlying motivations for them. If you do not, you will likely let your decision making process be compromised and dictated to by outside forces. When this occurs the process steers you to a decision. Goal setting gives an organization a focal point and a basis to measure progress. So set them, set a process to achieve them, and when an alternative presentments itself, ask yourself if this aligns with your goals and motivations. This formal goal setting process will come in handy when evaluating potential capital sources.
Document and Ask Questions: Kyle was not very fond of paperwork (I was surprised when reading this book by the amount of paperwork our elite warriors have on the battlefield). He would rather be active and in the field rather than writing out operation plans and documenting what happened out in the field. However, he realized the importance of the documentation. At one point in the book he said that he would much rather grab a bunch of soldiers give a quick briefing and then say follow me then write up a formal plan with step by step directions and map locations. But the value of documentation was letting everyone one else know what was going on in case he or anyone else did not make it back.
In most businesses, the day to day operations are not life and death but documentation of processes, plans, and procedures are mission critical. When I managed and trained junior talent at the investment banking firm and private equity funds I worked at, I used the “What if I got hit by a bus principal.” If anyone of them got hit by a bus, the business has to keep running. So we had standards for documentation on various workflow processes so that no matter what anyone could walk into a deal at any point in time, get caught up, and execute with as little disruption as possible. Document so if a key employee left for another job or more tragically was hit by a bus, your business would be minimally impacted.
When a private equity group sees well documented procedures, they get excited because they know that there is a strong institutional foundation off of which to grow and scale the business. The plans and procedures are not in the heads of Tammy from operations or Fred from human resources. They are tangible, real, and actively being employed. This produces value in either a capital raise or a full sale process.
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