All posts by rickandrade121

Putting the Brakes on BIG Decisions –

Get it done and get it done fast! This is how CEOs are measured today. See a problem, fix it, and move on to the next one, the faster the better. The old “Time is money,” has given way to the new “Speed is money.” And in the world of constant everyday decision-making, speed always makes sense. Sound familiar?

But when you’re in the world of BIG decision-making, speed is completely the wrong approach. To suddenly switch gears from high to low is not always so easy to do. Like sex; in most cases ‘speed’ is not the #1 ‘get it done’ best approach, rSpeed Trapight? Yet, this is where speeding past the risk factors can get you into real trouble.

Think about the analogy. If you have sex at the same breakneck speed that your Board of Directors pays you to make decisions, then I fear you stand a higher chance to completely underestimate the risks that a sloppy performance can have. And that’s my whole point. Remember any decision worth making is only right when it successfully achieves the ‘expected outcome’ [read my article: The 6 Key Principles of Decision.] But enough about sex.

When astronauts Neil, Buzz and Mike all returned from the first Moon landing mission in Apollo 11 in 1969, it was only a good decision to go in the first place because they came back in one piece. That was the expected outcome. Such precision however also cost us all millions of dollars and years to plan for. In that example, making a speedy decision took a back seat to making a Quality Decision.

It reminds me of a funny John Deere (new riding lawn mower) Tv commercial: two neighbors zipping around atop their new Deere mowers, and maybe to justify the likely higher price of their new toys bellow out to their wives:  “It’s not how fast you mow; it’s how well you mow fast.” And who would disagree with that? High Quality results are always worth something extra. But that is not the only message here. The other message suggests that when speed increases, so do risk levels. And when risk levels get out of control, you need to slow down and readjust your thinking and approach.

For example, the old standard sales question from your stakeholders asked ‘how will you increase sales next year? But when facing a BIG decision, that is no longer the right question. When risk goes up the right question is not ‘how much will you increase sales by next year, but rather, ‘how well can you lower the risks that sales will decline next year?’ Maybe John Deere has it right.

Listen… we all know that every business has everyday risk factors, but when BIG decisions are involved risks are amplified. And when risk levels become elevated the consequences for getting it wrong can be a real mission killer. In other words; it could mean lights out for you and your business… So how do you reduce the levels of risk amplified when making BIG decisions?

Regardless of your luck or talent, as CEO, making BIG decisions is par for the course and will always mean tradeoffs… But when you do find yourself barreling forward into a BIG decision and you don’t have weeks of time, and NASA’s endless budget to attenuate risk factors…don’t get overwhelmed. Before you pull the trigger, try these (4) Emergency tips. They have proven to get CEOs past a speed trap or two when they can’t slow down:

  • Call & consult an SME, (subject matter expert) if possible
  • Identify & focus on measurable results your BIG decision expects to achieve
  • Show confidence in your BIG decision and others will follow
  • Be nimble & flexible before you pick a costly fight

And remember, in this new era of CEO performance where Speed is Money, “it’s not how fast you make decisions, it’s how well you make decisions fast.

Make sense…?


“Some Guy Called… Says he wants to buy my business”

If I had a dollar for each time I heard that I would have well over 100 dollars! Not a lot of money, but it is a lot of business owners who get calls, emails, letters, and visitations from prospective acquirers, all saying the samCold Calls Imagee thing. “I have a buyer for you Joe, and they will pay you top dollar for your business, interested?”

Now what? Should you take the call?

It’s natural, as a hard-working business owner, to want to hear from someone that says your business is worth a pretty penny. And if you are nearing retirement, you might be thinking about this very thing. What is the value of my business? And does this guy really have the money to buy it or just fishing for new business…?

As a result in this note, I want to briefly address one of the most burning questions you as a potential seller will have before you answer that call.

Who are the REAL prospective buyers for my business?

In general, below $10 million in annual sales is the Business Broker Market. If your business has sales between $10 million and $100 Million per year, your business is classified in the “lower middle market” of all size businesses. Above $100 million there is the “middle market” whose range extends from $100 million in annual sales to $500 million in annual sales. And above $500 million in sales is the “bulge-bracket” market. These are the larger private or public companies like the Dow 30 or S&P 500. This market is an entirely different world of mega buyers and sellers. And not likely to call you unsolicited to buy your business…  But the other markets are each fair game for cold callers.

The reason these markets are broken down this way is mainly because bulge-bracket advisors like JP Morgan, or Goldman Sachs have a lot to choose from among higher end M&A transactions. As a result, there has been traditionally enough business for these big firms to slice the M&A market pie into smaller sub-market segments, like the middle and lower middle market ranges, and so on.

Nevertheless, in nearly each market segment the buyer “pool” is generally comprised of two types of buyers who are actively looking to acquire your business. We call them Private Equity Groups (PEGs), and Strategics (industry competitors).

Let’s take a closer look at these two groups, and see what they want from you.


Private Equity Group Buyers, and what they want

Private Equity Group buyers are the more diverse of the two groups. These companies range in size, and target acquisitions based upon the size of their investment fund. These investment funds which can range from several hundred million to billions in investment capital. These funds are raised from various sources such as pension funds, endowments, public & private trusts, investor pools, and wealthy individuals who all commit to invest when a prospective seller appears on the scene.

Selling to a PEG is not the same as selling to a Strategic buyer. PEGs have to reach specific IRR returns to their investors generally over a 5-7 year period. This means that your business will need to meet specific profit and growth metrics before they will invest, ie) buy your company. This proforma approach to buying businesses as a result can be risky, especially if the PEG adds little more than money to the equation. Consequently, PEGs may not pay as much as a Strategic acquirer who knows the industry and can exploit synergies to save money or increase sales after they acquire your business.

Strategic Buyers, and what they want

Strategic buyers on the other hand want more customers, more operations, more products, services and profits, etc. These are the M&A transaction reports we hear about on the news regularly buying each other to grow vertically in the same industry. Strategic buyers may pay more for your business because they may see more ways to cut redundancies after combining your business with their business, and hence save money on the deal. Strategics may also be able to increase sales to your customers using their products & services. That in turn could also enable them to pay more for your business.

So whether these cold-callers are PEGs or Strategic buyers just know that these first-contact callers are merely fishing expeditions. They may say or even promise a host of possibilities to get you to say yes to a visit. But once you agree to a visit, you could get locked into believing anything is possible.

What to do when a Prospective buyer calls

If you get a cold call from a prospective buyer, tell them “no thanks, I’m not ready to sell my business at this time,” and hang up. This is the best way to preserve the value of your business. The reason not to engage any cold-caller (even when you’re ready to sell) is because it’s not a real market. It’s a guy fishing for a sale, and if you are not yet represented by an SEC/ FINRA licensed advisor like me, find one. These licensed pros may not only find more than one prospective buyer to compete for your business, but they may also likely negotiate a better deal with the buyer that finally does make the most sense to sell to.

Oftentimes sellers who don’t have seller representation are taken advantage of. For example. Let’s say you are a lower middle market company in the manufacturing industry and you agree to meet with a prospective buyer after a cold call. During the meeting you may even all agree on a purchase price. But soon after supplying the buyer with 3 past years of confidential financial and customer information, the buyer decides to reduce the offer price. Why did they do that? Because your sales were flat three years ago and that could be a risk. Now what? With no back-up offers, or no one to help find a back-up offer, you are left holding the bag, at which time many sellers find themselves boxed in and compelled to take the lower offer price. But there is a better way.

How to avoid the cold call trap

When the time does come to hire a professional to evaluate, prepare, and confidentially market your company to all the best prospective buyers, not just one or two, call me. As a licensed FINRA representative I can better help you navigate the complex world of middle market M&A transactions, and in turn potentially save you a lot of time & money preparing you and your business in the best way to the best buyers, for the best price… that’s what I do.

So when the time comes to consider taking a cold call from a prospective buyer of your business offering you pie in the sky… Just say “No! I already called Rick Andrade, he’s our M&A guy.”

Rick Andrade

Re-Made in America: Before Trump, After Trump

Rick Andrade – Los Angeles, CaRe-Made-in-America-400x240

Regardless of how you voted last November 2016 for US President, the results of a Trump victory are shaking the pants off corporate board room execs from here to China and back. Weeks before becoming President Mr Trump seemingly in a matter of ‘Tweets’ reversed the course of U.S. manufacturing outsourcing, and perhaps ushering in a new paradigm for global players.

But what does a Trump era presidency really mean for U.S. jobs and business in 2017?

Before Trump, After Trump

Before Trump, American businesses went about business as usual; The Goal; find more ways to make more money for shareholders… and that meant finding or creating ways to reduce the cost of doing business. Most notably over the last 5 decades U.S. companies sought to reduce the cost of both labor and taxes. These two because the rest of the world noticed that U.S policy-makers had fallen behind in these areas, and hence indirectly created a competitive opportunity to offer big companies a lower-cost of business as incentive to leave America and move offshore. And it worked; as the chart below indicates; the rate of outsourcing of U.S. jobs was flat… until 2002 when the internet and globalization strategies began to develop them more broadly.

Add ‘Before Trump,’ and over the last 15 years, the internet, and new technologies have quickly enabled and accelerated ‘corporate globalization,’ which in turn enabled the free flow of investment capital, and manufactured goods & services across borders.ReMade in America article chart-jobs outsorced

That, in turn enabled manufacturers to more easily establish operations in lower-cost countries to save money and export their wares back into the USA. In fact, from 2000-2016 dozens of well-known U.S.-based companies have relocated their corporate headquarters offshore specifically to avoid or reduce the cost of labor, and taxes. All combined, these companies have more than $2.5 Trillion in profits waiting to be repatriated back to the U.S. — but not at the “Before Trump” tax rates.

After Trump, things will change. No longer will mega multi-national companies with the resources to take advantage of new technologies, favorable U.S. tax & trade laws, low-interest capital, cheap labor and low regulation requirements easily take advantage; Because what was once good for business has not been good for low-skilled American workers in pursuit of the ‘American Dream.’

Rather, decades of job losses, inner city disenfranchisement, and the growing gap between rich and poor has taken its toll on American prosperity for many. The evidence by the numbers is clear. Since 2000 the U.S. lost 5 million manufacturing jobs to other, more cost competitive (lower wage) countries, according to Money Magazine. Moreover, as much as 20% (1 million) of those jobs were lost as a result of the once popular North American Free Trade Agreement (NAFTA). In their place, 5 million low-wage service jobs were created in the U.S over the last 8 years.

Enter Trump. Nothing like him said the political class. Can’t win, won’t win, shouldn’t win, you name it, every dog piled on. But nearly all the predictions were wrong. Because what was once the silent majority awoke to collectively storm the ballot boxes in an effort to take back and re-direct the economic direction of our country. And when the dust settled, like out of an old Clint Eastwood western movie, the new sheriff’s in town. And this one’s promised to really shake things up, bring back jobs, rollback regulations, reduce taxes, and revise a costly healthcare system for all Americans, and American businesses. President Lincoln in his first address to Congress in 1861 said: “Labor is the superior to capital, and deserves much the higher consideration.”

So will 2017 be a banner year for American business, for growth, for prosperity?

According to the NFIB small business survey at the end of 2016, small business CEO confidence registered its highest level since 2004, a 12 year high. And since Trump’s election victory several U.S.-based manufacturing companies, including Apple, Boeing, Caterpillar, Ford, GE, United Technologies, and others have announced plans to re-shore thousands of jobs back to the U.S. And don’t forget Amazon which announced it will hire 100,000 new full-time U.S. staffers over the next 18 months.

Looking ahead at a Trump-era presidency

While we all love the ideas Mr. Trump has espoused to “reset” the relationship between global businesses and global governments, we also fear the return of trade wars, currency wars, and real wars. These are all real downside risks.

Still, as we watch the U.S. stock market tip over DOW 20,000 for the first time ever, it reminds us of America in the roaring 1920’s, after WW I, when President Coolidge and the America people felt on top of the world and prosperity reigned for nearly a decade before the big market crash. Today, nearly 100 years later it once again feels like America is entering a period of ‘America First” euphoria… where all things will be better than before, for everyone, as long as they reside legally in America.

As for our biggest trading partners in Europe and Asia…A Trump-era Presidency might see a regressive import tax which could raise the cost of some favorite toys like consumer electronics, and autos… But that just might be the price we pay for a while to focus on ourselves, and let the rest of the world fend for themselves. And maybe that’s a good thing…as we stand witness facing the pros and cons of something really big being ‘Re-Made in America:’ Us.

About the author: Rick Andrade is an investment banker at Janas Associates in Pasadena, Ca and finance writer in Los Angeles helping CEOs buy, sell and finance middle market companies. Rick has earned his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, and blogs at on issues important to middle market business owners. He can be reached at This article is for informational purposes only and should not be considered in any way an offer to buy or sell a security. Securities are offered through JCC Advisors, Member FINRA/SIPC. 

Rejected! Why thousands of Business Sellers won’t find a Buyer

Forget about getting a low-ball offer from a potential buyer of your business. How about a “no-ball offer” for your business?

It happens more than you think. Thousands of businesses each year go unsold. Many of these are simply too small, too dependent on the owner to survive, or simply have run out of stream. But these are not just mom and pop businesses either. Even larger and more established businesses don’t find buyers. You can find dozens and dozens of articles, blog posts, and videos trying to get their arms around the “why.” Studies, surveys, and polls all cite to this growing Seller’s abyss where some say a mere 20% of all businesses listed are sold, where 50% of purchase agreements never close, and where 90% of buyers don’t’ find the right business investment that makes the cut… Add to a seller’s challenge the coming wave of Baby-Boomer business owners all looking to cash out and retire in the next few years, all flooding the market, and looking for buyers atready-to-sell-or-not the same time. Sound scary?

Imagine after a year trying to sell your business you later find out too late that your business was in the abyss after all. And given a chance to go back in time and take a closer look at why, you learn firsthand the reasons. You discover that businesses across the board, from those with annual sales as low as $100k to as much as $100M and higher can fail to find a buyer to take the business to the next level.

To illustrate the “why”, take a look at this chart to the right: green is good, orange is bad. And thus from the buyer’s point of view it doesn’t take long to compare a good investment from a bad one. Just ask somebody who reviews these deals every day, like me. Or ask yourself; Does my business have:

  • Reliable Revenue Streams
  • Solid Dependable Annual Growth
  • Independent CPA Reviewed Financial Records
  • Operating Performance metrics at or above industry norms
  • EBITDA Margins at or above industry norms
  • Proven, results driven Mgmt Team Leaders

If so… you’re in the lucky green Ready-to-Sell column on the left. But if you’re not green, or if some measures are green and some are not, take some time to evaluate and improve the Sellability of your business before you call your broker and expect miracles.

According to Pitch Book, which tracks companies sold to Private Equity groups, seller multiples in 2016 are at their highest point since 2013. Making this year a strong market for strong companies and owners looking to sell. And who doesn’t like selling at the top?

So study this chart, and learn more about these simple measures of how well your company and management team measure up to what buyer’s expect most. Because when a business falls into the abyss, you can almost always find the “why” somewhere on the right hand side.

About the author: Rick Andrade is an investment banker at Janas Associates in Pasadena, Ca and finance writer in Los Angeles helping CEOs buy, sell and finance middle market companies. Rick has earned his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, and blogs at on issues important to middle market business owners. He can be reached at This article is for informational purposes only and should not be considered in any way an offer to buy or sell a security. Securities are offered through JCC Advisors, Member FINRA/SIPC. 

Deciding? Better Make it Quick or Else

Parachute pic

We all make them. Dozens, maybe more each day, they are OUR “DECISIONS.” And they have become increasingly risky and important to all of us, but even more important if you’re a business leader, leading a global-reach company. And here’s why.

What were fewer key decisions needed to be successful decades ago are today a plentiful minefield. Think about the consequences of a failed merger, or acquisition. Not good. How about a failed product line launch? Yikes! And maybe the worst: A failed manufacturing plant expansion. Serious stuff, right?

As a CEO advisor, I hear about these exact concerns — of success vs failure — from business leaders who understand the consequences, and yet still find themselves compelled to make important decisions without even a basic framework to help.

For some it’s like playing Black Jack in Vegas, for others it’s “analysis paralysis.” Whichever way you think is better, in today’s globalization world, the widening gap between them suggests we find a useful middle-ground way to bridge the gap, and fast.

Think about this. One of the most fundamental things a human being does in the course of a lifetime is ‘choosing stuff.’ We love it. It seems nearly everything we do, every move we make is a Choice. Like a virus, it’s taken over. “Making Choices” is now so pervasive to have infected nearly every culture and business worldwide. And we can thank the internet, and perhaps anyone under 30 years old with a smart phone. Which for all the great things they bring to all of us; they also bring an addiction to the need for speed, and the pressure that comes with making ‘snap decisions’.

But how can you “take your time” so to speak, when time is not a 24/7 Text App, but rather a major decision? Start here:

Decision or Choice: Which is it…?

  • In 1180 BC (according to Homer) the Trojans woke up and spotted a large wooden Horse outside the gates of their fortified city…
  • In 1591 (according to Shakespeare) Romeo, thinks restful Juliet is dead, and drinks poison to join her…
  • In 1812 Emperor Bonaparte invades Russia, in winter…
  • In 1912 Captain John Smith leaves the bridge of the Titanic for a quick nap…
  • In 1914 Henry Ford announces a $5/day payday…
  • In 1945 President Truman drops the first Hydrogen bomb on a human city…
  • In 1970 Paul McCartney quits the Beatles…
  • In 1986 NASA launches the Space Shuttle Challenger any way…
  • In 2003 the US invades Iraq to rid it of WMDs…
  • In 2016 the Republican Party nominates Donald Trump for President…

Find any ones you like, or can specifically remember? There are literally 1000s of such events which over the course of time, the birth of the internet, and speed of social media developments that have to some extent seemingly conspired together to significantly blur the lines between Decision and Choice.

Isn’t making a Choice, though, the same as making a decision? Kinda, but there is a big distinction: A DECISION is something you “made” a long time ago, a contemplative analysis and review of the situation… whereas a Choice is the act of implementing the decision.

For example, we DECIDE to get married, but we chose our spouse. We decide to buy a new car, we choose the red one. We decide to grow our business, we choose where and how. Make sense? Choice is the Who, What, Where, When and How… while Decision is the WHY. So think about it… if you make a decision without objectively contemplating the “why,” you are unconsciously making a potentially hazardous ‘snap decision,’ putting “Choice” before “Decision,” and that can be seriously dangerous in business, or in your personal life.

A Framework for Making Better Decisions

In the last year, and in a recent article: …How to Make Better Decisions, I analyzed and discovered 6 Key Principles of Decision-Making that arrests the impulsive digital-age desire to make a fast choice and move on, which in-turn gives you back a sense of control. I call them “Decision Rings;” designed to bridge the gap between a too fast ‘Choice’ and a too slow ‘Decision.’

Decision Ring Image

As you can see, a Decision Ring is a simple 6-step circular process, and even if you never get past #1, ask the most fundamental question supporting any major decision; “Why the heck are we doing this?”  Because by asking “why” at the very beginning of any decision (or Choice), regardless of how much time you have to pull the trigger, if you can slow the contemporary urge to do so just long enough for a second guess – you just might take back what so many leaders in history wish they had.

So when you hear a friend or colleague say “you better make a quick decision or else,” draw a Decision Ring, and reflect for just a second or two: “Are we talking about a Capt. John Smith, or Paul McCartney?”

(c) Rick Andrade 2016


How to Increase the Value of Your Business: Before You’re Gone

We all know the statistic. Ten thousand Baby Boomers turn age 65 each day according to the Pew Research Center. And of those many thousands who own businesses, a day of reckoning is coming.

Future - Traffic sign image

Do you know what the leading concern is among wealthy Americans heading into retirement? It’s not growing their wealth for the future; it’s preserving their wealth for family and philanthropy. Sound familiar?

If it does, and you own a business, you will likely leave money on the table when you sell or exit the business unnecessarily, why? Because most business owners don’t really know how a buyer thinks, and how they value the individual pieces of a business. Consequently, as each piece is measured and evaluated, the chances of finding weaknesses that can lower the value of the business grows. The more weak spots identified, the greater the gap between buyer and seller.

But there is good news. Business owners can narrow the divide before a sale if they learn how to “prep it before you exit.” Here’s how…

As we know, the first stop in any good exit plan should include your wealth planning and estate professionals. While most can offer dozens of ways to grow your post-sale proceeds in a retirement plan, that still leaves a huge need to help business owners identify weak spots that can reduce the value of their business “nest egg” before a buyer does.

And just like developing a financial planning retirement roadmap after the sale of a business, the best way to uncover value-drains in your business is to prepare a Pre-sale Business-(performance) Review. This way, while you’re still in control of the business, you identify and fix problem areas before you do decide to go market.

What’s in a Pre-sale Business Review?

The first thing to understand is that, like buying a house, the price or value of the property is only partly based on market conditions, the other part is “in the eye of the beholder.” This means that despite market trends or conditions, you and a best-fit buyer might not see eye-to-eye on the value of your business. And that is a bad place to start negotiations for more. If a big chunk of business valuation is “perception,” for a business to sell at a premium price it needs to truly demonstrate today a compelling ability to stay competitive and increase profits in the years to come.

How to identify Pre-sale weaknesses

The important direction of any Pre-sale Business Review is to identify and document the key value drivers that make your business profitable to buyers, and the risks, or obstacles that challenge the business going forward. Below are 5 time-tested Pre-sale Business Review methods that can help:

  • BCG Matrix: This matrix developed by the Boston Consulting Group decades ago is still a useful tool today to help breakdown and position a company and its products within one of four quadrants: a Question Mark, a Star, a Cash-Cow, or a Dog.BCG Matrix

Nearly any business, division, product line, customer segment, etc, or an entire industry can be measured and placed somewhere on a BCG matrix like this one. But while the exercise is quick and easy; the results are hard to change quickly. This is why if you find something you own is a DOG, unless it’s fury with four legs and a tail, it needs to go. Investment time, money, energy resources, you name it should all focus instead on sustaining high margin products or services, like Stars, while forcing all Dogs and Question Marks to beat their cost-of-capital to survive. Taking this action before taking your business to market can substantially improve a buyer’s perception of value.

  • Quality of Earnings Report: While having fully audited financial statements is a best practice 3 to 5 years leading into a business sale, another less costly measure is a Quality of Earnings Report. Most accounting firms that do Audits can also do a QE analysis. In fact, a significant component of a sophisticated buyers Due Diligence investigation of a targeted acquisition is a detailed review of earnings and expenses. But most business owners don’t engage a firm to conduct a QE. Owners don’t see the cost/benefit until it’s too late. However, a well done QE report will explain where a company or product should be placed on the BCG Matrix. And taken together the BCG Matrix and a QE report can thus specifically help a business owner (years in advance of a sale), identify and nurture strong revenue drivers, while shedding the weaker ones that influence a buyer’s perception of value.
  • Management Team SWOT: Strengths, Weaknesses, Opportunities, and Threats make up a SWOT analysis. The idea behind a SWOT analysis is to breakdown and categorize the key characteristics of any organized system into four groups. While similar to the BCG Matrix, SWOT also identifies both internal and external issues facing a business. In this case a Management Team SWOT summary can flush out areas where HumaSWOT imagen Resource investments need more attention. For example, is a lower performing corporate division a result of a poor product line, or poor management skills? A buyer could easily ask you or your investment banking team for a senior staff SWOT analysis during due diligence. But why wait until then? Do a Management Team SWOT now, in advance of your exit. Be honest with key staff, and be ready to make changes now while you are in control. Most buyers will look to weigh the pros and cons of your management team’s skillsets heavily in their value calculation of your business.

Top-drawer sellers know the contribution margins of their key managers. But many other business sellers don’t, and that can result in a major discount to value on exit. So take the initiative and implement a Management Team SWOT program that incentivizes leadership, sales growth, and customer satisfaction. The folks at White Rock Consulting for instance took a deep dive on Personal SWOT analysis which gives you a good idea of how to measure executives and staff strengths and weaknesses before letting a buyer surprise you to the downside.

Most importantly included in a Management Team SWOT analysis will be the big question. Who will replace you, the owner? And how will that person likely perform? Grooming younger managers to step up too quickly can be a costly mistake. Most buyers want a high performing team, and when they find one, they are generally willing to pay up to keep them. So make changes far enough in advance of your exit to allow key managers a chance to perform at industry-best levels.

  • Executive Dashboards: Tracking Performance Metrics has always been a significant use of resources. Regardless of how many years away from retirement you are consider implementing anExec Dashboard image Executive Dash Board (EDB). This does not have to be an expensive software commitment. But by having a robust and accurate EDB process alone indicates to buyers your commitment to knowing your numbers. This includes having access to data a few clicks away such as EBITDA margins, gross margins, product margins, inventory turns, customer turns, and budget forecasts. Each industry has its own set of common benchmark performance metrics that it values most, and a buyer will know them too. Even more, a buyer may know your competitors’ performance metrics and how they benchmark against “best practices” in the industry. A good EDB software package is well worth the investment pre-sale because it can track (in near real time) dozens of KPIs (key performance indicators) and can help executives make better decisions more timely and effectively. If you already have an EDB your company is already ahead of the game, and can be perceived as having a higher value.
  • Document Key Processes: Anything that makes it easier for a buyer to acquire, manage or integrate your company into theirs is a value-driver. But sadly, in many cases smaller company Process Flow Chartowners don’t document key process steps. Most don’t know how important this value-driver really is. And for these owners the risk of losing money increases everyday as key staffers who quit, can take an undocumented best practice process with them. This is very common and owners should be advised to create work manuals and map all process steps far in advance of a sale. Doing so will give buyers the confidence needed they can repeat your processes and grow profits into the future.

Lastly, while most sellers already know the key value-drivers in their business, most will still benefit separately by taking the time to measure the future today using a Pre-sale Business Review that includes these time-tested strategic tools. The important thing here is to key in on the value-drivers that buyer’s in the market are looking for in order to grow and perhaps double sales in as little as a couple years. So ask yourself…Is my business ready to be sold just because I am ready to sell it?

Your investment bankers who are active in the market will better know which performance and profitability metrics come first in the eye of buyers. So seek their advice, because if you are among the thousands of baby boomer business owners turning age 65 every day in 2016, the benefits of a few simple tools in a Pre-sale Business Review can substantially increase the amount of cash you take with you on that day of reckoning. Make sense?


About the author: Rick Andrade is an investment Rick Andradebanker at Janas Associates in Pasadena, Ca and finance writer in Los Angeles helping CEOs buy, sell and finance middle market companies. Rick has earned his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, and blogs at on issues important to middle market business owners. He can be reached at This article is for informational purposes only and should not be considered in any way an offer to buy or sell a security. Securities are offered through JCC Advisors, Member FINRA/SIPC. 


The 6 Key Principles of Decision: How to Make Better Decisions in Business & Life

Decision Ring Image

Rick Andrade – Los Angeles, Ca.

On December 8th 1941, a day after the Japanese attack on Pearl Harbor and other Pacific islands, then President Franklin Delano Roosevelt decided to officially end America’s isolation from the growing war in Europe by signing a declaration of war on the empire of Japan.

At the time, that historical decision seemed to be a no-brainer. America was attacked, 3500 people were killed and the American public wanted payback. But there must have been much more to that decision than a few chosen words in the heat of passion. Have you ever wondered what key decision principles FDR considered before making that fateful decision? Did FDR use a personal decision-making process, or merely a list of Pros and Cons developed by his advisors to help quantify the long term risks of war?

On January 14th 1914, Henry Ford suddenly announced that he would double the daily wage of his factory workers from $2.34/day to $5/day. Many said Ford was crazy, that the increase cost of labor would bankrupt the company. But Ford was somehow convinced in his mind that the new wage would reduce turnover rates, reduce cost, and increase the output of auto production. A man of deep contradictions Ford wanted perhaps most to enable his own workers to actually afford the autos they made.

But while every other auto manufacturer was trying to reduce the cost of labor, Ford’s decision put the company’s future on the line. And by the end of the following year in 1915 Ford’s sales went from 300,000 units to more than 500,000 units, and by 1920 sales topped 1 million units. Ford was a genius. But how did he know that his decision to increase wages and shorten the workday would pay off when his advisors said no?

For decades I have been fascinated by how and why people can support making risky decisions in their life and in their business, especially when those decisions can have colossal impact on people in the line of fire so to speak. So I decided to take a closer look, and after some study of dozens and dozens of major decisions made by major decision-makers over time, I discovered that most ‘good’ decisions consider 6 common principles. I call these principles The 6 Key Principles of Decision, and (by way of first introduction here) developed and arranged them in a circular step-by-step easy to follow flow chart that made the most sense.

I call this new framework a “Decision Ring,” and by using it I discovered how CEOs in business and life can not only make better decisions going forward, but also learn how and why some prior decisions turned out so unexpectedly bad.

I identify the six key principles as ‘principles’ rather than “rules” because while a rule is meant to compel your actions, a principle is meant to motivate deeper thought.

Not often in business do CEOs have to make life or death decisions but often enough the key decisions they do make can dramatically affect the lives of employees and their families. In bad economic times most of these decisions come by way of layoffs in the face of declining sales, or a merger. More infrequent are those key business decisions like Henry Ford’s that can overnight change the lives of hundreds of assembly line workers.

Fast forward to April 2015, credit card processing company Gravity Payment’s CEO Dan Price decides to raise his company’s base annual salary to a minimum of $70,000, which gave raises to 70 staffers and doubled the salary of 30 more. His explanation; A Princeton study that showed employees who make more money have a greater sense of “emotional well-being.” And in turn that emotional well-being makes employees better at their jobs, and more productive. To me, that sounds like Henry Ford’s decision instincts at work.

Clearly today, in a time where technology is lowering the cost of labor and eliminating jobs altogether, raising wages seems counter intuitive. But is it? Well that depends on Principle #1: Developing the ‘Why.’ When Dan Price made his decision clearly he had an Expected Outcome in mind that employees at Gravity Payments would happily stick with the company longer, and produce greater returns; a risky move right?

In other words, it hardly matters that an important decision be a matter of life, death, hiring, firing or giving everyone a big fat raise. Because what really matters is that the decision-maker includes all six principles and the weighted risk that each brings to the table before pulling the trigger. In business, more of this approach is evident in practice because most CEOs look for consensus from a Board of Directors; implicitly a contemplative decision-making body. But often enough many leaders must take it on themselves to make key decisions, knowing all too well that going it alone and getting it wrong can have widespread consequences, both in life and business, and it is for these decision makers that I created the Decision Ring.

So what is a Decision Ring and how is it used? Let’s take a closer look.

A Decision Ring is exactly like it sounds, it’s a circular closed loop process inside which stands the 6 Key Principles linked to the associated ‘Risk’ that surrounds ‘Your Decision’ at the ring’s center. Each associated risk factor goes up or down based upon the level of confidence you have in overcoming the downside risk each principle exposes in your decision. Each Principle is then linked to a list of questions to ask and answer as shown:

The idea is to start at Principle #1 Developing the ‘Why” which is the Expected Outcome of your decision. This before moving on to Principle #2 Fear that which Time Takes which is to understand (good or bad) your decision’s particular Time Constraints, etc, on around the Decision Ring engaging each principle all the while revising the ‘Why’ (your Expected Outcome), each step along the way.

In my experience, using this approach can help ensure that no significant factor in your key decision goes over-looked or over-emphasized. Used properly, the Decision Ring framework can be used as both a tool and a process to ensure that the decision-maker and/or advisory team is indeed considering all 6 principles in the expected outcome, and not just one or two as the case may be.

Consider this simple example. A couple decides to get married and wants to live happily ever after. But as we know, the chances are high that an imbalance will occur among the 6 principles in the decision ring because most couples will rely heavily on Principle #5 – their ‘emotions’ to achieve their expected outcome. And this makes sense as most couples “expect” the outcome to be a long-loving marriage, at least upfront. But then why do 50% of all American marriages end in divorce? Ask them ‘why’ and most divorced couples will admit it wasn’t a good fit after all, or, they acted on impulse and didn’t think it through enough. So does that mean all future marriage partners should spend more on a “Wedding” Decision Ring before platinum or gold? Maybe. It probably couldn’t hurt, right? Well then what about business-to-business marriages? Could they use an M&A Decision Ring to avoid a bad break-up too? Lets see…

On January 10th, 2000 AOL and Time Warner announced they too would be married. That combination was valued at more than $350Bil including debt according to reports. Back then the internet was quickly evolving and the new “dot com” craze was in full swing. Jerry Levin CEO of Time Warner seemed to panic, faced with a real dilemma on how a giant content owning and producing media company should advance in an online world.

At the time AOL, headed by former marketing consultant CEO Steve Case, was a huge hit with internet newbies by leveraging its “You’ve Got Mail” email system and easy-access online portal. In 2000 AOL had 20+ million subscribers and the money-losing company was valued by Wall Street at an astonishing $163 Bil (sound familiar?), twice the size of Time Warner in market cap. So then why did this merger fail? What did that Decision Ring look like to Jerry Levin back then, and what were the key drivers that lead to the final decision to accept the AOL offer only to later find it was according to Jeff Bewkes, who became Time Warner CEO in 2008, ‘the biggest mistake in corporate history,’ as a host of issues conspired to make it fail?

Let’s take a quick look at our Decision Ring and see if we can spot the trouble.

Principle #1 Developing the Why; the Expected Outcome was that Time Warner would be able to sell all its content to millions of AOL subscribers and hence both subscribers and earnings would increase dramatically, thus increasing the market cap of the marriage to an eye-popping $350Bil. To the two CEOs at the time this was likely a good enough reason to do the deal alone. So let’s move on.

Principle #2 Fear that which Time takes; and know your Time Constraints. In 2000, the internet was young, and just getting access to it was a hot pursuit for Americans. In fact, the “adoption rate” (speed) by which Americans wanted to gain access to the internet was unprecedented. Unlike nearly any time in history Americans were “dialing up” the internet to see the future unfold. This was pretty powerful stuff back then. So the pressure to identify and secure a go-forward strategy was at a fever pitch.

Principle #3 Always know your Numbers; this includes Money/Manpower and Resources to either complete the deal, or survive a failure. So was this principle considered? Both AOL and Time Warner had plenty of stock value to do a deal. And given all the dot com rage back then, AOL seemed like both an online juggernaut, and future cash cow. To them the numbers seemed to pencil out.

Principle #4 Knowledge is still Power; and here is where the deal blows up in my view and had they used a Decision Ring it would have been obvious. It’s the technology stupid. At the time AOL was using first generation internet access called “dial up” which uses old-fashion telephone wires. Copper telephone wires made access slow, and content downloads repeatedly difficult to complete. Meanwhile regional cable companies were experimenting with something new: ‘Broadband’ cable internet access. I know this personally because I was living in one of the first cities in the country (back in 1996) to get ‘online’ using broadband cable vs telephone-line ‘dial-up’ service. The download speed difference between the two was nothing less than game-changing.

Broadband (cable) technology enabled users to download internet files at a lightning 10Mbits (bits per second) back then. While dial-up (before DSL) was painfully slow at 56kbit/s (bits per second). And once the word got out, AOL was in trouble. Subscriber growth declined fast, and AOL had few technology advances in place to stop the bleeding and increase dial-up speed to its millions of subscribers. And once the dot com bubble burst, the marriage was in trouble.

Principle #5 Know thyself & flock; because your Ego and Emotions can take logic and reason away from you faster than you think. And, at the time the AOL-Time Warner merger was the largest in recorded history. The attention to that alone must have been quite an ego boost to Levin and Case. This was a first of its kind marriage between of the real world and the online world. No one really knew what to expect other than when all was approved by the FTC and SEC, the combined company would have a market value of more than $350Bil. Acting on ego or emotion alone can turn a good merger into a nightmare. But you can recover as many do given the other 5 Principles achieve the Expected Outcome for you.

Principle #6 Have a Personal wisdom; that stems from your Instincts/Experience & Training. This one is the hardest because your instincts are generally based upon your prior experience and training. Remember the phrase “been there done that?” In this case, given the sense of urgency to button-up AOL before another company did, perhaps, over-shadowed the fact that AOL was entirely overvalued, and that its true value in the future was being brought forward at a premium valuation based on old technology. That should have been THE major risk factor and maybe it was, but dot com hysteria back then was too strong of a force to let wisdom reign.

Which brings us full circle; to me the merger was a huge mistake, and history proved it so. But for what was a financial and cultural disaster, could have been avoided if CEO Levin and his Board of Directors used a Decision Ring process. So my advice here is to get your arms around your decision-making process by building out a Decision Ring that addresses the key questions behind each principle, and measures the risk and degree of confidence within each before you put your company and the lives of many people on the line. Do that and there’s a good chance that you too will find more reasons and better confidence to support and communicate to all ‘Why’ your major decisions in life and business turned out so well.

Until then, stay tuned for more about Decision Rings in the weeks ahead as I apply the framework to some of history’s most famous decisions and the decision-makers behind the scenes who risked it all to make it happen.


About the author: Rick Andrade is an investment banker at Janas Associates in Pasadena, Ca and finance writer in Los Angeles helping CEOs buy, sell and finance middle market companies. Rick has earned his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, and blogs at on issues important to middle market business owners. He can be reached at This article is for informational purposes only and should not be considered in any way an offer to buy or sell a security. Securities are offered through JCC Advisors, Member FINRA/SIPC. 




Want to get a Premium Price for your business?


When the time comes to consider an M&A sell-side transaction as a private company, the first question I get is always the same: How much is it worth? And while there’s nothing wrong with that, it’s the answer that is seldom right. This is because the question is more specifically asking less about how well a banker can find a hot buyer in a hot market to pay up, and more about a few key measures that can really make all the difference in value. Here’s why…

In most cases CEOs and business owners all want the same thing, top dollar, and why not ask a Premium Price for a premium business? That makes sense if we are all looking at the same thing. However, while many business sellers try to coincide the sale of their business with a hot seller’s market in hopes that a rising tide will lift all boats, the real price premium comes from within.

Getting a Price Premium (which is to say a higher than average price on the sale of a business) really comes down to convincing the buyer of your business to pay more than a similar business in the same industry. Regardless of whether the market is hot or cold, in our experience as investment bankers closing dozens of deals, getting an above-market premium price stems more from these 3 key buckets:

  • Annual Sales Growth
  • Industry Leading Margins
  • Superior Brand Equity

Annual Sales Growth

As you know, most industries today contain a range of competing enterprises in size from start-ups to mature international companies. And in most cases, the pre-market value of each is measured as a multiple of EBITDA (earnings before interest, tax, depreciation and amortization). This multiple is based upon identifying and comparing prior sales of similar companies. However, what’s often overlooked in these company-to-company comparisons is the direct product-to-product SKU line item sales and margin growth factors. Why?

Because product or service category growth comparisons is the big equalizer. If a smaller company outsells, and out-profits a larger competitor in a product-by-product comparison, the smaller company’s product line should receive a higher valuation to a buyer. This is why larger companies routinely pay premium prices for smaller niche market players with tremendous growth prospects. That’s because premium growth attracts premium value, period.

The key to receiving a premium value is therefore a CEO’s ability to directly deliver on both incremental category and market-share growth per product, per year. The more successful a product line’s growth, the higher the valuation will go. When growth is above industry category norms or averages, for instance say above 10% annually, a growth premium as high as 20% could be added to your company valuation and potential transaction price in an M&A deal.

Industry Leading Margins

This one gets a little tricky, because depending on size and industry, top performers who deliver on sales growth can also deliver on higher margin growth if they are able to sell higher priced goods and services. Nonetheless, big or small it’s your Gross Margins and EBITDA Margins which are perhaps the two most actively tracked and compared metrics against competitors and your company’s own prior period results. Once benchmarked, however, achieving margin growth every year is not easy. Input prices can change quickly, new competitors can enter the market, and frame-braking innovations can disrupt channel demand, among other things. But for CEO’s that do out-perform competitors and show steady margin improvements, let’s say from 5% to 10% or more each year above their competitors, they can expect as much as another 2 times EBITDA multiple or better in increased market value. Now that’s a premium price to market.

Unfortunately, the opposite can also be true. Declining or stagnant margins will not excite a new buyer, especially in mature and declining industries. These companies use size and scale to overcome slow margin growth. And in this case bigger is better because larger companies have at their disposal more ways to reduce costs and leverage efficiencies such as robotic automation, and volume purchasing power discounts from vendors. Beyond these, growth in mature industries comes mostly via M&A transactions. And having industry leading margins across a competitive landscape generally means acquirers will pay up to get what you have.

Superior Brand Equity

What’s in a name? Everything. For eons advertising and promotion have been the mother’s milk of most successful marketing campaigns. Whether your company is B2B or B2C makes little difference. Why? Because humans still make the purchasing decisions for nearly all business and personal consumption. eCommerce which got its legs in the roaring nineties did manage to automate procurement into eProcurement and thus removed most human interference. Still, until computers make all purchasing decisions, companies of all sizes must still aggressively promote their brands to new and existing customers or risk decline. This is where mature companies with mature product line brands can stay on top with large marketing and promotion budgets. When it comes to branding, having lots of money to get the message out can lead to early sales success. As new market entrants introduce new product and service innovations, mature companies can always and will always counter attack any way they can, including an outright purchase of the offending competitive threat rather than out-spending them on marketing.

Perhaps, most noticeable today is the premium market valuations put on high-tech companies whose ability to promote and sell their brand (think Apple, or Facebook) can quickly lead to out-sized sales and market-share growth. This is what a powerful brand can do when it works. However, often times smaller companies who do understand the benefits of a strong brand can quickly over spend, destroy value, and still fail to establish or sustain a profitable growth trajectory.

Developing a strong brand does not necessarily mean spending truckloads of money on pitching your product line, rather what buyers who pay premium prices want to see is a strong brand that provides mostly the repeated promise and delivery of a satisfying transaction between two parties. Without that, few brands will add meaningful improvements to corporate market valuation. On the other hand, if your company’s products and services are growing at a healthy clip year over year, a considerable campaign effort to increase the value of the brand itself makes perfect sense, and can in turn increase company value substantially. The bottom line here is that having a higher level of brand recognition can translate into a premium price valuation. Make sense?

So to summarize, the overall Valuation of a business is what humans perceive the value is of the company’s products and services, and the promise of a consistent repeat performance. Getting a premium price in an M&A transaction is not about what your company’s past accomplishments were, although that’s important, rather from a buyer’s perspective to get a premium valuation depends on how well they see themselves earning a profit standing somewhere in the future in your company shoes. So if you are considering the sale of a business, make it easy. Before you consider a merger or acquisition value above and beyond what a hot or cold M&A market multiple will offer, look to improve these 3 key valuation metrics above first. That’s where the real premium comes from.