Any company that has weathered the recession of 2008-2009 well should congratulate itself for exemplary performance amidst truly trying times. And with the stock market at new heights and the broader economy on the upswing, the leaders of many high-flying companies could not be blamed for feeling that now is the time to double down on their strategy. Yet ironically this could sow the seeds of trouble.
When is accelerating spending on growth initiatives prudent or just a drain on the bank account? Mid-market firms can spend too much too fast, or spend too little too late. It’s like the driver who braves oncoming traffic to pass in the passing lane—misjudging speed, distance and timing can be deadly.
CFO Magazine’s online edition has asked me to write a monthly column about improving the CEO/CFO dynamic in mid-market companies. The first article just went up, and focuses on interacting with the board of directors.
CEOs excited about growth often open the purse strings too widely and wind up in financial crisis. Yet it is true that you have to spend money to make money. So what’s the right balance?
The odds of successful acquisitions are dismal. A Federal Trade Commission paper says 50% of deals for companies large and small are not successful. This is troubling news for mid-sized firms, which can’t afford the losses of a bad deal as easily as a Forbes Global 2000 company can. In fact, it’s especially troubling because many mid-market CEOs assume they merely need to avoid acquiring sizable companies and opt for small, “bolt-on” firms instead. I wish it were that simple. But it isn’t.
Beware of acquisitions for the sake of diversification. Such acquisitions carry significantly higher risk and complexity for middle market companies. Read about how to assess the level of complexity, and what you can do to mitigate that risk.
Some CEOs are too passionate—too religious about their company’s vision. They stick to it and refuse to change even when it’s apparent to many that the strategy must be adjusted. Read about structures and processes that can help introduce reality into a passionate CEO’s thinking before it’s too late.
Predicting market demand can seem like a dark art. Many companies have collapsed because they spent money on plan, but the market failed to respond in time. Read about simple steps the members of the c-suite can take to pursue both primary and secondary research that will illuminate market forces.
What is the right way to determine how fast to spend when cash flow is negative? Read about how the confluence of market predictability, execution confidence and forecasting acumen affect good decision making. These three big variables must be taken into account long before the runway grows short.
Making an ill-advised acquisition can be deadly. Buying a company is a massive decision, often with high complexity and risk. But how risky and complex is your deal?
Robert Sher is founding principal of CEO to CEO, a consulting firm of former chief executives that improves the leadership infrastructure of midsized companies seeking to accelerate their performance. He was chief executive of Bentley Publishing Group from 1984 to 2006 and steered the firm to become a leading player in its industry (decorative art publishing).