In The Trenches

For many business owners, few things are as exciting as receiving a Letter of Intent (“LOI”) from a prospective purchaser. Beyond the sense of validation stemming from the fact that a sophisticated counterparty sees an asset worth paying for, many business owners likely view an LOI as a just reward for decades of hard work, sacrifice, and illiquidity.  Understandable as these reactions may be, I would argue that they are premature at best, and misleading (or even incorrect) at worst.  This audio blog attempts to speak to prospective sellers of small or medium-sized businesses about what LOIs are (and more importantly, what they are not), and to review how experienced buyers may strategically utilize them as tools to further their own objectives, sometimes at the expense of those of the seller.

Today's episode is all about the finance & accounting function: My guest is Nicholas Andrews, who is the Founder of Aspen Consulting Group, a company that performs finance, accounting, and operations consulting for a wide range of small and medium sized businesses. Aspen’s services include technical accounting, corporate finance, valuations, operations planning and M&A due diligence, among others. Our conversation begins with several questions about how to manage cash and other sources of liquidity amid all of the macroeconomic volatility & uncertainty we’re currently witnessing. We then discuss the topic of employee financial literacy, including the question of how transparent CEOs should be with company financials, and then move to questions of capital allocation and how CEOs should think about spending the cash that they generate, and finally we conclude with several considerations related to hiring, specifically focusing on the question of how CEOs should think about hiring a senior finance & accounting leader, which I suspect many listeners are attempting to do for the first time. Please enjoy!

In this episode, I attempt to debunk a common misconception among prospective acquirors, particularly those looking to purchase a business for the first time. This myth states that the smaller the business in question, the easier it is to purchase and operate. In the material that follows, I will attempt to explain why the exact opposite statement is likely true: That smaller companies are actually much harder to both purchase and operate when compared to their larger peers. 

My guest today is a particularly personal and a particularly special one for me: I have been fortunate to call Jim Sharpe a mentor and friend for over 10 years now, and I am thrilled that he agreed to join the podcast. In this week's episode, we discuss the realities of running a business during high inflation environments, including the risks and opportunities that may present themselves during such times. We also discuss how CEOs should think about pricing their products and services in response to inflationary pressures, and finally how they should deal with vendors who attempt to pass through price increases to them. Jim has been at at the Harvard Business School since 2009, holding positions as a Senior Lecturer in the MBA and Executive Education programs, an Entrepreneur in Residence, and now serves as a Visiting Executive. In 1987, Jim purchased Extrusion Technology, an aluminum extrusion fabricator that he ran as CEO for over 20 years. In 2008, Jim sold the company to a private equity firm, having grown the company from $4MM to $32MM in revenue throughout his ownership tenure. Jim is now an active investor in small and medium sized businesses, holding ownership positions in more than 50 entrepreneurial companies.

In his book, The Five Temptations of a CEO, author Patrick Lencioni discusses five areas in which CEOs tend to inadvertently prioritize the wrong things. These “temptations”, as he calls them, can lead to poor decision making at best, and can risk the very survival of the company at worst. My experience leading a software company taught me that there is a sixth temptation, unique to software, that seemed to present itself on a near-daily basis. More specifically: The biggest temptation of a software CEO is to throw bodies (specifically engineers) at problems. It is this sixth temptation that I struggled with most frequently. With the benefit of hindsight, I’ve come to a few realizations that I’d like to share with fellow software CEOs in hopes that they’ll do a better job of managing this temptation than I did. Among other lessons, I share how the following realities should shape the decision of whether or not (and by how much) to increase the size of the company's engineering team: Communication channels grow non-linearly as team size increases Work expands to fill the time allotted for its completion The development team will never be big enough One unit of additional capacity often doesn’t produce a unit of additional output When CEOs add more developers, they’re often attempting to solve the wrong problem It’s much easier to add than it is to take away Hiring engineers can be a very difficult hire to quantify  Please enjoy!

My guest today is Carin-Isabel Knoop, Executive Director of the Harvard Business School Case Research & Writing Group. Carin has spent decades writing cases on managers and leaders all over the world, across a wide array of functions and industries. In 2019, alongside co-author John Quelch, she published Compassionate Management of Mental Health in the Modern Workplace, a book that dove deeply into the relationship between work life and mental well-being, and suggested in which managers can and should act as the "chief mental health officers" of their respective teams.   In today's episode, we dive deeply into the following questions and issues:  Link between employee burnout and turnover Signs for leaders to look for that may be predictive of turnover Prevention strategies, for both the CEO and her employees Can CEOs maintain “high performance cultures” while simultaneously managing the risk of employee burnout? How to detect emotional depletion within yourself Personality traits that are positively correlated with burnout risk  Separating your own sense of happiness from the success of your business at any given time How acquirors of businesses can and should perform due diligence on the employee base that they're acquiring Please enjoy!

Today's episode is aimed towards those who may be wrestling with the question of whether or not to finally pursue their entrepreneurial dreams. I walk you through how I made this decision myself in 2012, and also attempt to compliment those considerations with some of the lessons and reflections that I’ve garnered in the 10 years since then, which of course benefit from the clarity that only seems to come with hindsight.  Whether or not to take the entrepreneurial plunge is a deeply personal question, and as a result no objectively correct answer exists to address it. What I argue in this episode however is that the answer itself will only be as good as the introspection, thought processes, and clarity of insights that led to it in the first place. Entrepreneurship is generally much less risky than most might think, though it is also significantly less glamorous than its depiction in most forms of media today. Though most people understandably focus on the risk of walking the entrepreneurial path, it’s equally important to acknowledge of risks of not doing so. Please enjoy!

In this week's episode, we discuss the importance of having difficult conversations, something that CEOs find themselves doing on a near-daily basis. We discuss three primary types of difficult conversations, including a) Hard conversations around internal company dynamics (eg: terminations); b) Hard conversations about dynamics external to the company (eg: politics); & c) Difficult conversations that CEOs must sometimes have with themselves (eg: how and when to ask for help). This is a particularly special episode of In The Trenches for a number of reasons, including: It is our first ever video podcast! (Video available only through Spotify, however) This is our first ever episode featuring a panel discussion, including myself and a panel of four SMB CEOs, investors and Board members This episode is a recording of a session that I moderated during the 2022 MIT Sloan Search Fund Summit, hosted by the ETA@MIT club  Please enjoy!

My experience as a CEO taught me that the most important skill for any leader to possess is that of clear and effective communication. Indeed, a CEO’s strategy is only as good as her ability to communicate it.  Though some of the basic tenets of effective communication are obvious and intuitive, others are less so. My experience leading a company over many years illustrated that good organizational communication often went well beyond the basics. In this episode, I will share with you some of the most important lessons that I learned about effective communication within my own company, including if, how & when to communicate around terminations, financial results, good news, bad news, and many others. Please enjoy!

My guest today is Chris Hutchinson, a Partner in Ernst & Young's Transaction Advisory Services Group. Chris has over 15 years of experience advising clients on M&A, financings, valuation projects, and due diligence mandates, with a specific focus on private lower-middle-market businesses. Chris and his team have completed an untold number of Quality of Earnings ("QofE") mandates spanning countless industries, including software, technology, business services, distribution, and retail, among others. Chris and I discuss what a QofE is, why it's necessary, and common trends and themes that buyers should look out for. We also discuss the working capital adjustment: What it is, why it's necessary, and common pitfalls for both buyers and sellers to avoid. Please enjoy!