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No Mans Land - Doug Tatum - BRAG Denver Business Networking

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A private event held by www.bragdenver.com

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No Mans Land - Doug Tatum - BRAG Denver Business Networking

  1. 1. No Man’s Land Doug Tatum Chairman, Newport Board Group
  2. 2. No Man’s Land: Adolescent Stage of Business When your business is too big to be small and too small to be big…
  3. 3. No Man’s Land The Small and Shrinking Middle Market All in Economy Firms Employee Size 2000 2010 Count Change Establishment Change 1-19 10,582,370 18,915,551 79% 60% 20-99 650,221 659,685 2% -3% 100-249 73,499 71,518 -3% -6% 250-499 20,916 20,100 -4% -15% 500-999 9,504 8,954 -6% -25% 1000+ 9,244 9,047 -2% -35% Totals 11,345,754 19,684,855
  4. 4. Average Growth Comparisons (2006-2010) Based on average company in existence over all of the past five years. On average, over the past five years, companies in No Man’s Land: - added 8-times as many new jobs… - grew at a rate almost 4-times faster… - expanded 3-times more often… …than the average US business establishment.
  5. 5. Contribution to US Employment Growth (2006-2010) Based on average of all companies over past five years. Companies in No Mans Land account for less than 3% of business establishments, yet they contributed 30% of new jobs added by all US businesses.
  6. 6. YourEconomy.org
  7. 7. Meeting the Growth Challenge: A Map through No Man’s Land-- The Four Ms Realign with your Market Hire your Senior Management Understand your Model Raise your Money
  8. 8. The Market Transition
  9. 9. Alignment The company is small and the entrepreneur is in control
  10. 10. Meeting the Growth Challenge: A Map through No Man’s Land— Market Mis-alignment Company Simplicity Customer EARLY STAGE/ SIMPLE EARLY STAGE/ SIMPLE Multiple Customers Company RAPID GROWTH/ SIMPLE? Complexity Market Mis-alignment is the natural progression of Entrepreneurial Control
  11. 11. Blind Spot #3: Value Proposition 85% 7% source: Newport Navigator CEOs say their employees can clearly state their company’s value proposition Leadership teams can articulate a common value proposition
  12. 12. Meeting the Growth Challenge: A Map through No Man’s Land-The Market Navigation Rule The business as a whole must become good at doing what the Entrepreneur did well with customers in order to successfully re-create Market Alignment .
  13. 13. The Management Transition
  14. 14. Blind Spot #2: Accountability 86% 20% source: Inc. Navigator CEOs believe that everyone is held accountable for performance Leadership teams agree
  15. 15. Meeting the Growth Challenge: A Map through No Man’s Land-The Management Navigation Rule The founder must hire at the top first, not the middle, to successfully navigate through No Man’s Land
  16. 16. The Transition in the Economic Model
  17. 17. Meeting the Growth Challenge: A Map through No Man’s Land-The Model .
  18. 18. The Transition in the Economic Model Know your Profit Zones
  19. 19. The Case of the Freight Forwarding Industry Pre-tax Profit % by Five Year Average Firm Size $< 50 0k $5 00 k1m $1 il m il$5 m ill $5 -1 0m $1 0m il il20 $2 m il 0m il50 $5 m 0m il il10 0m $1 00 il m il p lu s 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Pre-tax Profit %
  20. 20. EBITDA and Adjusted EBITDA Revenue Evolution Capital: Case Study I
  21. 21. EBITDA and Adjusted EBITDA Revenue Evolution Capital Case Study II
  22. 22. Meeting the Growth Challenge: A Map through No Man’s Land-The Model Navigation Rule The business’s value proposition must be scalable (profitable at a higher volume) to successfully navigate No Man’s Land
  23. 23. The Money Transition
  24. 24. Illustration of “Capital Funding Gap” Capital Funding Sources and Risks for Small and Emerging Businesses Funding Level Business Category Emerging Emerging Growth Growth Businesses Businesses $1 million “CAPITAL NO MAN’S LAND” “CAPITAL NO MAN’S LAND” -Limited Cash Flow-Limited Cash Flow- 0 (“Too big to be small; too small to be big”) (“Too big to be small; too small to be big”) Start-up and Other Start-up and Other Small Businesses Small Businesses Business Risks Investment Bankers Investment Bankers (IPO Market/Private Placements) (IPO Market/Private Placements) Commercial Bankers Commercial Bankers Private Equity Groups Private Equity Groups Venture Capitalists Venture Capitalists SBICs/SBA Loans SBICs/SBA Loans BUSINESSES IN BUSINESSES IN $250,000 Capital Sources Lower Risk Very Limited Access to Capital Very Limited Access to Capital (Angels/Factors) (Angels/Factors) High Cost of Account && Collateral High Cost of Account Collateral Management Management Business Borrowing Exceeds Personal Assets Business Borrowing Exceeds Personal Assets Investment by Family && Friends Investment by Family Friends Loans Based on Personal Assets: Loans Based on Personal Assets: Banks/Home Equity/Credit Cards/SBICs/SBA Banks/Home Equity/Credit Cards/SBICs/SBA Higher Risk
  25. 25. Private Equity Faces New Challenges and New Opportunities Employee Size 2010 # of Firms # of % of Total Companies Firms already Public & Financed Private Capital Backed 2010 1 in 5 are PE Ready: % Bought out 1 in 10 are PE Ready: % Bought out 100-249 71,518 3017 4% 21% 42% 250-499 20,100 1337 7% 33% 67% 500-999 8954 928 10% 52% 104% 1000+ 9047 2055 23% 114% 227%
  26. 26. Add-Ons as a Percentage of Buyout Deals
  27. 27. Number of Secondary Buyouts and Secondary Buyouts as a Percentage of Total Buyouts
  28. 28. Meeting the Growth Challenge: A Map through No Man’s Land-The Money .
  29. 29. Meeting the Growth Challenge: A Map through No Man’s Land-The Money Navigation Rule The key to raising money is reducing real and perceived risk of the company .
  30. 30. Invitation Get Radically Objective About Your Business
  31. 31. Blind Spot #1: Team Alignment 92% 2% source: Inc. Navigator CEOs say their teams agree with and can clearly communicate their strategy Leadership teams can list the same strategic priorities
  32. 32. General Thoughts and Conclusions Think Strategically Act Strategically
  33. 33. No Man’s Land Q&A

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