Resultsman’s Blog

Opportunity is Knocking!

Posted in Uncategorized by resultsman on October 6, 2009

Opportunity is knocking for those who are bold enough to hear its call. Bold business leaders will recognize this fact and create their own opportunities. Followers wait for them to occur. It appears as though we have now experienced the worst of the recession of 2008/2009. Business conditions as expressed by economic indicators and the stock exchange indexes are improving.  

I recently read a blog posting in which the author wrote that a restructuring will take place among private equity firms due to the fundamental changes in financial markets.  The private equity business model will remain as an important part of the innovation cycle, but the opportunities will come from different places and be exploited by executives with a different set of skills.  During the last business cycle, many firms in the private equity sector enjoyed unprecedented growth and increases in return on invested capital as a result of financial engineering skills.  The days of easy credit and extreme leverage are behind us.  The mediocrity of executive leadership is being exposed!  In the future successful executive leadership will come from those people who have the capability to create wealth from (1) the reorganization of stressed assets and (2) to create wealth from the growth of new businesses. 

Opportunities will abound in the new business cycle. Corporate values are suppressed. For a while now, deals of necessity (bankruptcy or cost-cutting capacity elimination/consolidation) have been the only type of transactions that are taking place. This situation seems to be changing. Prudent risk is the part of any investment. Those who can identify the growth opportunities and implement plans to exploit them will be successful. Calculated risks taken now will be rewarded as we progress through the growth of the next economic cycle.

We are experiencing an evolution in the innovative growth model for businesses.   Large companies have a reduced willingness to make the investment in R&D than they once did. Growth in many large firms is coming by way of merger and cost reduction through consolidation.  The pharmaceutical and chemical industries offer two examples of this.  Pfizer is acquiring Wyeth, and Dow has completed the purchase of Rohm and Haas which it entered into before the financial collapse. In both cases cost reductions and consolidation will follow the transactions.

The period of consolidation is a challenging time for the new organizations.  Eliminating organizational redundancies can create an environment of fear and uncertainty for the remaining employees.  Once the work of eliminating organizational redundancies has been completed, organizations must quickly turn their focus to establishing a positive re-enforcing sales culture.  The sales culture will be the engine that drives the “organic” growth of a business.  A true sales culture is systematic, supportive, trains, motivates and energizes the sales force, recognizes that everyone in the whole company is in sales and finally creates the conditions to be the difference between average and astounding results.

 Small companies are being relied on to a greater extent to be the engine of innovative growth.  Many small pharmaceutical companies are being created as a result of entrepreneurial activity or as spin-offs from larger firms. Universities have been an ongoing source of basic research which is often followed by licensing and entrepreneurial commercialization in small startup firms. These small firms help the innovation process by mitigating the developmental risk and cost of guiding promising pharmaceutical compounds through the development and commercialization maze. The larger firms are then purchasing these small companies late in the regulatory process.   

The job of the leaders of small to mid-cap public companies to enhance the wealth of its shareholders by creating value (1) equity from “organic” growth and (2) payment of dividends. More often they are now taking on the second step of the commercialization process by making targeted acquisitions of these startups and small-cap companies from their founders as they enter into the rapid growth phase of the life cycle. 

It will be the ability of managers to create value by organic growth that will differentiate the stellar businesses from the average performers.   Those with the capability to assemble management teams that will create value from the assets being acquired will prosper in the long run. This is certainly going to be the mantra of the next business cycle. The time to move is at hand.


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