PS Acquisition Model: Evaluating Firms

In prior blogs in this series, we outlined a deliberate process to help Professional Services (PS) firms make the best business acquisitions based on their strategic, financial, and growth goals. We detailed the Targeting stage, where businesses create a broad list of acquisition targets and narrow it to a list of possible acquisition targets based on established criteria.

The Target Phase is completed when a list of prospects that fit the target criteria is narrowed to a “short list.” This marks the beginning of the second stage, Evaluate, where the short list is contacted to begin mutual evaluation.

Once the list is narrowed, the first step is to Develop the Candidates to determine interest and viability as an acquisition.

In developing the candidates, it’s important to identify and connect with principals at the target: C-suite, Partners, Board Members depending on the structure of the organizations. These conversations should dig into additional information on the target to validate some of the assumptions you had when you added them to the list. It also provides an opportunity to gauge the principals’ intent for the target – are they interested in selling? Would they make a strong partner?

Deeper evaluation for this set of targets also includes:

  • Strategic Alignment – validating or updating prior understanding of the role that the target can play in the portfolio, growth strategy, etc.
  • Market Fit – gaining a clearer understanding of the markets, segments, and clients that the target is successful in or could be successful in
  • Financial Importance – determining the financial impact the acquisition will make on the business
  • Talent – Capacity & Capability – delving into the depth and breadth of the principals and full team and assessing risks for flight, fit, etc.
  • Fit for Purpose – identifying barriers to integration of the acquisition into your operating model and culture to ensure their strategic fit can be realized
  • Motivation to Sell – learning the impetus and intensity of the target’s desire to sell to help you evaluate likelihood of a deal and potential deal structures

After evaluating the candidates, you can use a Weighted Criteria Matrix to complete the Evaluation of the Narrow List of Targets. In doing so, you will:

  • Assign a value for each of the target criteria
  • Evaluate each potential target and prioritize

The following detailed criteria are used to finalize selection of candidates to enter a Letter of Intent:

After each candidate has been through the evaluation, the list of prospects is narrowed to final candidates. Letters of Intent are developed and signed for each candidate.

A Business Case is performed on the candidate(s) once the letter of intent is signed. The company to be acquired will provide detailed financial and operational information:

  • A business case is developed once the financials are verified.
  • Synergies are evaluated and inserted into the business case to identify value creation in the business case.
  • Final valuation is prepared, break-even point is identified, and potential price range is determined. A sensitivity analysis of the assumptions (synergies) allows for some flexibility in price and structure as due diligence is performed.

After evaluating the final list of candidates, you can move forward with executing a letter of intent and enter the next phase, Negotiation.

 

Written by: Doug Long and Sarah Cushman

About the Authors:

Doug Long is a Partner with McMann & Ransford and has more than 26 years of experience in consulting across various industries, topics, and client challenges. Prior firms include Deloitte and GE. He currently leads our Healthcare Practice.

Sarah Cushman is a Senior Consultant with McMann & Ransford and has experience working with Fortune 500 companies to solve complex challenges, drive differentiation, and create long-term value.

The Looming Transformation: TSW 19 Takeaways

I just returned from another great TSW conference focused on the long transformations that many companies are currently undergoing.  In the below post, I share a few of the key themes from the conference and insights surrounding what much of the TSIA membership base is going through. We can agree with these key themes and circumstances being the “market reality” – we have seen these themes with our clients for years – and now TSIA has the data to prove it.

For those unfamiliar with our partners at TSIA and some of their key members, you can learn more about them here: https://www.tsia.com/why-tsia/our-community/current-members

Key themes of TSW 2019:

The market is forcing companies to undergo a transformation to remain viable and profitable in the new world.

Whether you realize it or not, almost all B2B technology-based companies are transitioning (or considering transitioning) from how they were built to thrive in the Old World, focusing on best-in-class pricing, best-in-class technology, or best-in-class service.  In the New World, not only are those things table stakes, but your customers are now forcing you to build offers directly targeted at their needs.

We see it all the time and have been preaching that a customer-focused (customer intimacy) based business model is what it will take to win in the future, and according to the data, the future is now.  Adding to the complexity is the market’s appetite not only for new solutions that are targeted at their unique needs, but that those solutions are structured in a way that is easiest for them to consume.  Long gone are the days of a large hardware/software purchase tied to the highly profitable long-term service agreements, with which you could create the latest and greatest “version” to drive demand and revenue.  Now the market is accustomed to models like “as-a-service” or “consumption-based”. The market wants an all-in package, inclusive of services and don’t want to worry about upgrading things as new features/functions are rolled out.  As a result, Customer Success functions are taking off and businesses are being forced to transition the way they are structured and operate, and it is often very different than the old structure and operating model.

The looming (or ongoing) transformation is daunting. Success is dependent on internal alignment, deliberate planning, and most importantly – effective communication.

The data suggests that this transformation could take 5+ years.  This requires a significant level of organizational commitment, especially with constantly changing leadership, ever-moving strategic priorities, and dynamic market pressures.  As a result, alignment is critical.  There is no part of the organization that is insulated from the changes that need to occur and there is no “one-size-fits-all” approach to doing it. You can’t dust off the playbook that someone else used and hope to replicate their results; in the New World, you need to create a plan, centered on where the market needs you to go, and then spend all the time necessary to achieve internal alignment. Directives don’t work here! Too much buy-in is required…  Once you have finally agreed on a strategy and a plan for achieving that strategy, communication is critical.

Communication must occur on two fronts:

  • To the market, as you prepare them for the financial reality of what the transformation will take;

Since the transformation cannot happen overnight and financial results will temporarily appear to dip when beginning this transformation, a communication plan executed early in the process is essential.  Think about it — the cash cow for many of these businesses have been the large purchase and subsequent services contract, but if the business is shifting even a portion of its business to these subscription- or services-based models, it impacts both the total amount of booked and recognizable revenue in the short-term.  The business is making a conscious decision to defer revenue now for: 1) de-risking the likelihood of a competitor doing what the market is asking for first; and 2) annuitized contracts that will eventually reduce the cost of sales and improve margins for the business.  Not to mention, the additional investment required to make sure you can support these new offerings in the market. There shouldn’t be a surprise that the financial results will temporarily suffer, so don’t make it a surprise – get out in front of it with a plan and begin sharing new metrics of performance as soon as you have them to share.

  • With individual clients as you work to ensure you have all the information you need to de-risk an individual deal.

As you move into this model, you are going to have to get good at communicating with clients on the front-end of a deal, before the deal is sold.  You are assuming more risk of client outcomes in this new world, so make sure you are taking on a good deal.  Whether the new offers are truly “risk-based,” meaning a portion of your revenue is tied to the performance or not, the fact that you are deciding to transition from getting that “big purchase” to getting into a long-term partnership arrangement with your clients means you need them to realize the benefits that were promised to them.  Client adoption and utilization of your hardware/software/service is critical.  This means that you can no longer throw your product over the fence to the client and wish them the best.  Therefore, sales can no longer throw a deal over the fence to delivery and hope they are successful.  Sales needs to be proactive in having conversations to understand how the client truly intends to realize the outcomes of your solution(s).  Selling these types of solutions tends to be easier because there is far less capital risk (less money out of pocket initially) for a client, but there is still partner risk (are you the best company for me to outsource this critical function to), and having those early conversations with a client is a great way to make them feel better about their potential partner, while also de-risking the deal to you.

These few takeaways grossly underestimate the involvement of a large-scale transformation, but they were the few themes that continued to come up at the conference. Looking forward to the next TSW conference to see how the membership base continues to progress through their transformation and eager to continue working with them and others to help them get there.


Written by: Anthony Paluska

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About the Author: Anthony Paluska is a Partner at McMann & Ransford with experience helping organizations overcome commoditization by developing stronger, more intimate, relationships with their customers. He has leveraged his management consulting, problem-solving, and change management skills to support 15+ Fortune 1000 organizations, across a multitude of industries.

Embedded PS: How to Transition the Staffing Model for Greater Growth and Impact

In our last blog, we discussed that while embedded Professional Services businesses are being asked to do more, solve more, and grow more, there are impediments to these corporate mandates. Embedded product-attached PS businesses often have diamond-shaped staffing models that primarily employ skilled and tenured SMEs. As a result, the business model can be high-cost, difficult to scale, and higher-risk than necessary.

Therefore, solving the growth curve mandate often requires embedded PS businesses to shift their staffing models to a pyramid – or leveraged – model. This transition requires deliberation and education.

What is needed to make this transition?

As you know, a PS talent base requires a mix of skills to yield a well-rounded team to drive success. Therefore, a tailored, PS-specific talent development program can serve as the foundational mechanism for driving movement to the future state and enabling PS to play its strategic role in meeting corporate growth goals. This occurs by:

  • Transitioning the current staffing modelto one that is more flexible and scalable.
  • Cementing a culture of encouraging and enabling internal knowledge transfer, thereby reducing longer term business risk of having all core knowledge in the minds of a handful of Subject Matter Experts (SMEs).​
  • Building and enhancing the team’s soft and advisory skills.
  • Decentralizing day-to-day decision-makingto those closest to the client.
  • Instilling a growth-oriented
  • Hiring additional capacity to fit the future state model; Updating the sourcing, interviewing, and onboarding
  • Focusing more leadership time on being “player coaches” and less on resource management (i.e. scheduling and allocating), problem resolution, and client management.​

 

This program must be well-rounded and incorporate technical skills and domain knowledge training, while focusing on developing the often-overlooked PS skills:

 

A well-designed talent development program enables the staffing model transition by focusing on developing PS skills that are crucial for achieving high growth and penetrating new accounts in new segments.

 


Read more
about building an effective talent development program to foster the advisory skills and customer intimacy necessary to drive embedded PS success.


Written by: Mark Slotnik and Sarah Cushman

About the Authors:

Mark Slotnik has spent nearly 20+ years advising clients in the areas of designing and taking to market high-value business solutions, solution portfolio management, talent development, resource management, business process re-engineering and commercial software.  

Sarah Cushman is a Senior Consultant with McMann & Ransford and has experience working with Fortune 500 companies to solve complex challenges, drive differentiation, and create long-term value.

PS Acquisition Model: Targeting Firms

In the last blog in this series, we outlined a deliberate process to help Professional Services firms make the best business acquisitions based on their strategic, financial, and growth goals. Targeting potential acquisitions is the first step in the process.

The objective of this phase is to create broad list of possible targets that fit the strategic criteria and narrow the list to a “short list” of prospects that will be contacted to begin mutual evaluation.

First, the targeting criteria for strategic fit are developed. Depending on your needs, each criterion may require a unique acquisition, or one target may meet multiple needs.  (This situation is further considered as you narrow the prospects.) When determining the criteria for strategic fit, consider the following as it relates to your portfolio strategy:

  • What capability and intellectual property (IP) gaps do you want to fill?
  • What are the greatest challenges facing your customers that want to help solve?
  • What capabilities or IP do we currently have that we want to augment?
  • What new markets and/or customers are you trying to enter?
  • If applicable, what gaps in technology are you looking to fill?
  • Which executive buyers do you want to have greater intimacy with or greater access to?

After defining the criteria, you can build a list of possible acquisition targets. This step often entails:

  • Researching potential targets in trade publications, professional organizations, and online,
  • Leveraging team knowledge and referrals, and
  • Engaging clients to help identify targets.

At this point, you will want to think very broadly about potential targets to ensure sufficient options are available and opportunities are not missed.

Finally, you will narrow the targets to a viable list of prospects for more detailed evaluation.  Placing the targets on a “Targeting Matrix” will assist you to visualize the relative merits and challenges across the full range of targets. Often this exercise will further clarify your priorities.

Typically, a basic 2×2 of what you believe are the most important strategic criteria the best starting point for the matrix.  Additional criteria (such as size, breadth of the target’s portfolio, industry or segment focus, or complementary non-PS offerings) can be captured visually by size, color, shape etc. of the icons in the matrix. Targets that meet multiple criteria are often a better “fit” in the Target Phase.

In this example, companies 2 and 7 have a strong fit for both primary criteria.  Size and color of the icons would provide further insight.  Additionally, depending on the importance of the criteria A and B, other targets may prove attractive or be ruled out.  In a recent client example, one axis represented exclusive focus on an industry segment and the other axis represented exclusive topical focus. After seeing the matrix, the client determined that the industry segment focus was essential, thereby eliminating a substantial number of targets from consideration.

After using the Targeting Matrix to hone your criteria and narrow the target list, you are ready to move to the Evaluate Phase.

 

Written by: Doug Long and Sarah Cushman

About the Authors:

Doug Long is a Partner with McMann & Ransford and has more than 26 years of experience in consulting across various industries, topics, and client challenges. Prior firms include Deloitte and GE. He currently leads our Healthcare Practice.

Sarah Cushman is a Senior Consultant with McMann & Ransford and has experience working with Fortune 500 companies to solve complex challenges, drive differentiation, and create long-term value.

PS Acquisition Model: Process Overview

Our recent blog explored some of the unique dynamics in acquiring Professional Services (PS) firms to expand the portfolio and enable an existing PS business to make a greater impact on the customer and the overall business. While the principles discussed apply to any growth-oriented PS business, they are particularly important for embedded PS businesses making the transition from product attached to outcome-based.

The challenges of finding acquisitions that fit your portfolio strategy, work in the correct segment(s), provide differentiated IP, contribute materially to critical mass, and are available/interested in selling combine to create a constant tension between finding the best option and finding a “good enough” option. Therefore, whether your intent is to make a single acquisition or several, you must consider a broad range of options and manage this complex process holistically and dynamically – each step with one prospective acquisition may impact the attractiveness or viability of other targets.


The four-phase process shown below takes you deliberately through finding targets that fit with your strategic objectives, evaluating candidates to build a robust business case, negotiating a mutually beneficial deal structure, and finalizing the deal while mitigating critical risk factors. Following this process will help ensure that the acquired firms will propel the growth engine for your business by:
• Achieving customer outcomes,
• Building greater customer intimacy,
• Introducing you into new market spaces,
• Pulling through other services, and
• Enhancing brand credibility with executive buyers.

Additional blogs in this series will delve into the detailed steps for each of these phases.

Written by: Doug Long

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About the Author: Doug Long is a Partner with McMann & Ransford and has more than 26 years of experience in consulting across various industries, topics, and client challenges. Prior firms include Deloitte and GE. He currently leads our Healthcare Practice.

Elevating your Portfolio through XaaS

Many clients ask us to help them re-engage their customers in a more meaningful way.  They successfully engineered, operationalized, and commercialized a set of products or services that created or met a market need and have enjoyed the success of growth, market share and the financial rewards that accompany both.  However, through our understanding of the commoditization curve, we know these successes have a finite timeline.  Regulations, extreme capital requirements, supply chain limitations, or any of the other factors that can insulate a product’s market and profit only protect markets for so long; they are eventually overcome, and the market share, revenue, and profit erode.  We have found that in many cases, these factors can be thwarted and delayed through adjustments to your commercial and business model, extending the lifecycle of the product and its financial impact to your business.

This is true for all products, but especially for the stars of your portfolio – margin-rich goods that provide much of the leverage for your organization, creating access to clients and funding needed investment for new products and services.  These stars are the natural targets for your competition, both seen and unseen.  Known competitors want to capture your clients and market share to be the dominant player and compound their capability to invest and engage new customers.  Start-ups and other small unknown players are seeking access to these margin-rich opportunities by engaging with transformative technology, first eroding the market and then siphoning clients, and ultimately changing the entire competitive landscape.

To fend off this competition and lengthen the commoditization curve, we help our customers create more value for their products and services and extend their lifecycle.  To start the process, we work with the client to understand their customers’ strategies so they can begin to extend the value they create further downstream.  Doing this effectively multiplies the value you create for your customer, building a tighter, more partner-focused relationship that is difficult to sever.

An example of this is a banking technology company we worked with that, as we described above, identified a margin rich market segment (small to medium sized banks) that they wanted to protect and expand.  The market segment was very profitable but not as large as the market the core business addressed (large mega banks) so posed an interesting opportunity for the client.  After investigating the market, it was discovered that the small/ medium banks’ customers wanted the same services and solutions in their typical remote/ rural locations that were more commonly provided by the large banks in the city centers.  The smaller regional banks were anxious to close the gap and provide these services.  Doing this would protect their customer base from being acquired by the big banks who were looking to engage this market with expanded capabilities – investing in easy access facilities and remote technology capabilities.

Our client felt their technology could assist these small/ medium sized banks in bridging this gap but knew there would be challenges to the investment model if they approached it as a large bank might – investing to deploy more expensive technology and develop storefronts.   An alternative way to bridge the gap would be to develop and deploy a Technology-as-a-Service (XaaS) business model with their current client base. There are many advantages to the XaaS model, but the one the that most appealed to our client was the potential to position and invest in new services and solutions to augment their existing technology, while minimizing the the capital outlay and providing a more robust revenue stream moving forward.

Instead of investing in specific technology for the market segment, they would invest in supportive offerings and services to better allow their current technology to engage with the clients. Identifying what specific services and needs your customer requires takes some time and investment; additionally, there might be upfront investment if these offerings and services do not fall within their current skillset and capabilities. However, with careful selection and understanding of your client’s overall value proposition, you can identify economic opportunities to transform your revenue profile (recurring revenue streams and subscription services) and expand the barriers to entry for less sophisticated competitors.

In our banking example, one of the options they explored was to develop a more robust professional services organization to help the small/ medium market segment clients implement more sophisticated transaction and business processing practices.  This was coupled with technology services that expanded the quality of high-touch interactions with their remote customers.  By introducing new revenue streams (consulting) and subscription services (remote accessing software), they both improved the financial profile and created a more partner-focused relationship. They were able to engage with strategic client and business issues – not only technology opportunities.

A XaaS business has the potential to help your clients develop better insight into their customers’ needs, expand their portfolio beyond products into business and strategy-oriented solutions and offerings, and create recurring revenue streams.   This is just the tip of the iceberg – there are other benefits to this game-changing business model that we will explore in future blogs.

 


Written by: Marc Cottle

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About the Author: Marc Cottle is an experienced sales leader with 15 years of experience; he is a Principal with McMann & Ransford and leads the Commercial Practice at the company.

The Guide to Moving the Business from Capabilities to Outcomes: Service Chains

 

Service ChainsSM (a tool set created by McMann & Ransford) were created to carry much of the effort to sell and deliver outcome-based offers to clients.  Service ChainsSM  place, in one integrated toolkit, all items necessary to:

Let’s expand on a few of these ideas to assist in understanding the power of the Service ChainSM tool set.

  • Selling the Way Buyers Buy – buyers progress through a three-step decision-making process:
    • Whether to Act – the first thing the buyer considers is whether to take action. This includes understanding the opportunity, likelihood of success, and the investment required. The Service ChainSM provides an Entry Project, a short-term and lower-budget introductory engagement, to evaluate that topic. Therefore, it allows the buyer and selling organization to move forward with little risk to answer whether to take action or further investigate the topic. Today too often, selling organizations fall into one of two situations:
  1. The buyer has already determined whether to act and how to act, and they are looking for a vendor to perform. This is a competition (maybe RPF) with focus on the wrong things like price.
  2. The selling organization is earlier in the buying process. The whether-to-act process is a long journey (resulting in a long sales cycles) with the selling organization investing significant time and effort with little reward for the investment.

The Entry Project moves the ball forward in a selling organization-controlled environment, gets the buyer writing checks, and provides valuable input to reduce the risk of the large deal for both buyer and seller.

  • How to Act – The next key decision for the buyer is how does their company goes about solving this issue or taking advantage of this opportunity. Again, the Service ChainSM takes this thought process into account.  The next project in the chain is the Proof Project.  This project requires greater investment (still much smaller than the large deal) and proves that the Idea will work in the buyer’s environment.  This project could be a pilot of the Idea, or a detailed plan etc.  The Proof Project again provides a structured way to move forward and additional information crucial to being successful in the large implementation project.
  • Work Above the Safety LineSM – One important goal for most firms today is to become more important and intimate with their key customers and segments. This requires addressing issues and opportunities that executives care about.  This combined with the fact that most sales efforts (and related talent) are geared to technical buyers and procurement makes dealing with executives a significant change in the selling motion. The Service ChainSM frees the organization to go directly to the executive because it is geared to how they think.  Working Above the Safety LineSM is both an offensive and defensive strategy.  It allows protection from competitors because the selling organization now has higher value and greater intimacy.  And, offensively, it provides a road to pull through the products and services that are more commoditized.  Finally, the Service ChainSM provides a mechanism for many existing sales resources to work with executives without having to replace the sales force.

We did not the take the time here to explain all the advantages of leveraging Service Chains,SM but I hope these examples help to demonstrate the power of the tool set.

 


Written by: Dean McMann

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About the Author: Dean McMann is a Founding Partner at McMann & Ransford with 35+ years of experience in consulting and professional services.  He is a sought-after expert and speaker on topics of: B2B differentiation, professional services best practices, and overcoming commoditization.  In addition to his extensive experience in the Professional Services space, Dean also serves on the board of various non-profit organizations.

Embedded PS: Transitioning the Staffing Model for Greater Growth and Impact

In previous blogs, we have discussed the rising demands of PS businesses embedded in large companies. They are being asked to do more, solve more client problems, and provide material growth. When optimized, PS can drive differentiation and intimacy for the greater business. However, there are two primary challenges that can occur when growing an embedded PS business:

Challenge 1: Many embedded PS businesses historically grew to size and scale through product-attached services and solutions such as installation, implementation, and product optimization services. The staffing model therefore is often comprised primarily of technology Subject Matter Experts (SMEs).

Challenge 2: As PS businesses are asked to do more, the staffing model falls out of synch. The talent often lacks the soft, advisory skills and industry and market knowledge necessary to drive PS growth.

As a result, product-attached PS businesses often have diamond-shaped staffing models that primarily employ skilled and tenured product-based SMEs. While not inherently a bad thing, it can present challenges to achieving the “new” PS business’s growth goals such as:

  • Higher Cost: Due to current employees’ experience level and niche expertise, they command high salaries.
  • Harder to Scale: Hiring more individual contributor SMEs does not readily allow for transferring specialized skillsets to other less experienced employees, thereby constraining team leverage across more clients.
  • Higher Business Risk: Lack of knowledge transfer may result in experienced SMEs holding the business “hostage,” as they independently possess unique skills and knowledge integral to business operations.

Therefore, solving the growth curve and corporate mandate often requires embedded PS businesses to shift their staffing models.

Transitioning to a pyramid – or leveraged – staffing model can benefit the business in a few key ways as it grows:

  • Margin Enhancement: In a PS pyramid staffing model, leverage is created by having lower-cost employees doing most of the work that is led and reviewed by more senior talent that can then be more available to support additional client accounts.
  • Scalable: SMEs serve as guides, sharing their insights with less experienced employees. The pyramid facilitates (and requires) knowledge transfer and normalized resource allocation.
  • Risk Reduction: Because knowledge and skills are transferred throughout the organization, the business reduces the risk of “being held hostage” by any individuals; individual knowledge becomes team knowledge.

Changing the skills and staffing mix over time lays a new foundation that allows the embedded PS business to better achieve its updated strategic mission. In the next blog, we will describe the factors necessary to transition the staffing model.

 


Written by: Mark Slotnik

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About the Author: Mark Slotnik has spent nearly 20+ years advising clients in the areas of designing and taking to market high-value business solutions, solution portfolio management, talent development, resource management, business process re-engineering and commercial software.  

Growing the PS Business through Acquisitions

This blog series deals with growing a Professional Services (PS) business through acquisition.  It will specifically walk you through how to use acquisitions to expand your portfolio of offers and/or get to critical mass in a multi-offer PS business.  This blog does not discuss using acquisitions to merely obtain staff to increase the size of a product-attached implementation business. That said, most PS businesses that launch as product-attached want to expand their offerings and move to outcome-based. This blog will explain how to do so through making the right PS acquisitions.

As we all know, PS is a unique business that works differently than other businesses in a large company.  The PS business requires different structures, rules of operation, talent management, etc. Acquisitions are no exception – acquiring companies works differently with PS than it does with other businesses.

When acquiring a company, we are trying to increase the portfolio to allow the PS business to make a greater impact on the customer and the overall business.  This requires offers that solve more important business problems than product-attached businesses can do in isolation.

Most acquisition groups in your company believe in larger acquisitions because the cost of the acquisition is similar for large and small deals.  However, what you need usually isn’t size – it’s IP and a little know-how.  There are few large PS businesses that will address your needs. Two exceptions to this rule were IBM’s acquisition of Price Waterhouse consulting and Korn Ferry’s purchase of the Hay Group.  In both cases these were well-managed and disciplined firms that met their growth and strategic requirements.  In most cases, however, this type of large acquisition is not an option.

The normal PS opportunity is to acquire a small or mid-size firm that works in the area you want to get in to.  When evaluating these opportunities, there are a few things you will have to understand or accept:

  1. The target firms will not necessarily be managed well. That does not mean they are not successful in their space – it means they were likely created by an innovative person and built around an idea or two. What you want is their IP and a few people who know how to sell and implement the idea. They most likely will not have experienced how to work in a multi-offer business or pull through the rest of your company’s products or offers.  Therefore, size works in an inverse relationship.  Why buy more than you need? The uniqueness of the IP matters most.
  2. It’s important to develop that methods and processes you want the acquisition to adopt. This includes:
  • Offer structure – Tighten and restructure their offers so that they’re more repeatable and less dependent upon the founder(s)
  • Selling – Understand how the sales assets will be enabled to sell this more impactful offer and how the talent from the acquisition will participate in that process
  • Portfolio – Have a clear position on how this offer fits into the larger portfolio of the PS business and the broader company
  • Talent Strategy – As the acquisition grows, define where the talent will come from and how are they going to be trained on PS and this offer

Therefore, it’s best to find a small PS business that fulfills your needs with very differentiated IP.  While this is the ideal situation, there are other criteria to consider:

  1. Principal’s Intent to Sell: First, it is best to acquire a firm where the principal has a reason to sell. For example, she/he wants to find a way to retire over time or is tired of running a small firm.
  2. Payment Structure: Second, small PS businesses are rarely worth what the selling needs to accomplish their financial goals. We have participated in roughly 100 of these acquisitions, and we believe the best practice approach is to provide them a payment up front and then tie a significant amount to your joint ability to grow the business. This two-stage payment structure will allow them (if they believe in you) to sell the business and have an opportunity reach their goals while you have their IP and some related talent.

Simplified Example: Illustrative

2 million annual revenue firm

Pay 1 million at closing

At 5 million in revenue (and related gross contribution) pay 1 million

At 10 million in revenue (and related gross contribution) pay 2 million

At 15 million in revenue (and related gross contribution) pay 3 million

They receive 7 million

Let’s assume this occurred over 3 years

You would have received 22 million in revenue

And 55% (gross contribution from projects) of 22 million – 12.1 Million in gross contribution

Also, if you have purchased solid IP and placed them into a strong system, (applying the methods and processes described above) then you would have also been able to acquire new accounts and have significant pull-through of other PS projects and products. In following blogs, we will discuss how to manage an acquisition strategy for several acquisitions.

 

 


Written by: Dean McMann

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About the Author: Dean McMann is a Founding Partner at McMann & Ransford with 35+ years of experience in consulting and professional services.  He is a sought-after expert and speaker on topics of: B2B differentiation, professional services best practices, and overcoming commoditization.  In addition to his extensive experience in the Professional Services space, Dean also serves on the board of various non-profit organizations.

Stakeholder Interaction Matrix

How to Build a Client Communication Plan

When working in a project-based environment, your client stakeholders hold the keys to success. Key stakeholders set the direction and tone for the organization. Therefore, ensuring they understand and are bought into the vision should be a continuous effort focused on building lasting relationships with players both above and below the line of safety.

Obtaining buy-in and support requires a deliberate plan and an understanding of each stakeholder’s position and attitude so we can meet them where they’re at. Obtaining buy-in and support ensures that we know how to effectively communicate with clients whose attitudes toward PPP may significantly range. The first step is acknowledging the key stakeholders and identifying how they feel about our organization and/or the project. Stakeholders often fall into four key categories that inform how we interact with them:

  • Neutralize: A stakeholder who is against our organization or the project
  • Educate: A stakeholder who is neutral or positive but cannot be a supporter because of lack of understanding
  • Update: Supporter who needs a heads up and can be used for information
  • Sponsor: Key sponsor who supports the initiative and/or can approve the next deal

After evaluating the stakeholders’ attitudes, it’s important to consider their role as it relates to our organization and the project to formulate a comprehensive communication plan (as shown below).  In the example below, we see that CEO Sally Sales is the decision-maker. She is an above-the-line-of-safety buyer who will play a critical role in the current project, however, she needs more information to fully support the initiative. Building a plan that provides Sally with an ongoing high-level summary will help her understand, and therefore buy into, our objectives. Don Delivery, on the other hand, will help us work through project challenges and move forward to the next deal.  He is a vocal proponent of our work. To ensure he remains involved and interested, he desires regular project updates. As CFO, Nancy Numbers determines the financial feasibility of the next deal. Coming from a strictly numbers perspective, she is hesitant to approve the organization and the project, so the communication plan should demonstrate the ROI through a factual, transparent tone to build trust. Finally, Michael Medical has a strong voice on the steering committee. With regular updates delivered in a friendly, relaxed tone, he too can transform into a big project supporter.

Combining Stakeholder Roles with Interaction Objectives enables you to create an informed communication plan. Some other Client Communication Best Practices include:

Client Communication Plan Best Practices:

  • Ensure the plan is detailed and tactical
    • Include internal owners and participants, deadlines, objectives, etc.
  • Ensure each meeting with key stakeholders adds value and advances the relationship
    • Only a finite number of opportunities to capitalize on meetings with key stakeholders
    • Leave them willing to meet with you again
    • Use the natural rhythm of the project to time meetings for maximum value-add, e.g., link to key junctures and deliverables in the work plan