How to set up your company to attract investors and outside sources of funding: VCs, angel investors, private equity funds

About seven or eight years ago, I had a client with such interesting patented technologies that I was willing to invest in the company, do away with my practice, and run the company through what I thought would be massive growth. Before I did that though, I decided to consult a private equity attorney to help me through the process, and what I learned during those discussions was invaluable for myself and for many of my future clients.

I’ve been talking to many companies lately who are looking for investments to grow their companies, and after attending (yet another) VC event yesterday, and talking to companies looking for money there, I thought an article about this topic was in order. 

As a backgrounder, it's important to know that angel investors typically spend around $1-3M on new ventures. VC investments typically range from low single digit millions to low double digit millions. Anything above that is typically private equity territory, where they look for much more established outfits, rolling up geographically diverse companies, etc., and they will invest up to billions. Most early stage investors look for 5-10X return over 3-5 years, equivalent to an internal annual rate of return of about 35%. And here’s what they look for in the companies they invest in:

A strong, experienced, energetic management team. I’ve never talked to a VC that didn’t have this as their top 3 criteria. They’re investing in the team as much as the technology. They need to know the team can execute otherwise they’ll just hold on to their money until they find the right company.

Game changing technologies, preferably with patents. Although some investors will invest in incremental improvements in existing technologies, they typically look for game changing technologies, locked up with patents, and with very high long-term returns. This is why green tech has been attracting so much money over the past few years. Not too many investors I know are actively looking for service oriented companies unless they show very strong financials, or rolling up geographically diverse companies.

Existing sales or contracts. If you can show your technology or product is already selling, you have a much higher chance of attracting investors. No brainer, but so many small companies just don’t get it when it comes to this. 

Strong market indicators or market research validating demand. At yesterday’s event, this guy from a startup was looking for investors for some patents they had developed without prototyping them. He was so adamant that somebody would invest in their company because he knew in his “gut” that this was going to change the way the world operated. Last time I checked investors didn’t invest in “gut” feelings of startup salesmen. This is why you need solid strategic understanding of your market before approaching investors (or show that the product sells).

Low capital, SAG, and structural expenses. If you need national advertising or expensive manufacturing plants, you’re less likely to attract investors. This is why I love licensing business models where the company focuses on R&D and leaves the product manufacturing and marketing to corporate licensees, an ideal setup for middle market companies.

Realistic financial models, projections, and contingency plans. This will show you know the size of your market, how it operates, and that you have the knowhow to sell the product, and have built in intelligence in case things don’t work out as expected. You will also need to show a detailed plan for the money you’ll ask for. It’s an inside joke that everyone is looking for $5-10M in investments. But why? What’s the plan for that money?

Lack of litigation threats or regulatory barriers. The last thing an investor wants to deal with.

Follow up financing plans. Particularly for early stage investments, you need to show a strategic view of where you’re taking the company and the plans for future financing to support that strategy.

It’s important to note that most investors no longer invest in patents alone. That part of the market has now moved over to patent portfolio managers where they actively purchase and group patents from various inventors for sale as a portfolio.

By the way, the company I wanted to invest in missed several of the above criteria (the best thing it had going for it was the technology), and I walked away without losing any money in the deal – and gaining a ton of understanding about private money.

If you have any stories or additional pointers about raising equity, I’d love to hear about it.

Competitors: Fuh’Get About ‘Em! How too much focus on your competition can throw your company off course

I was introduced to Seena Sharp over a year ago, though we didn’t meet until very recently – and we immediately hit it off. She runs a market intelligence practice helping companies focus and hone in on their customer needs. I asked her to write an article for The Directive this week, and I’m delighted that she accepted.

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Do you waste time comparing yourself to competitors?  Well, Fuh’Get About ‘Em. Now!

Companies with too much focus on competitors tend to offer more of the same, while fiercely defending the differences that customers either don’t notice or don’t care about. Then they end up with a product or service that’s faster/bigger/cheaper, when what the customer wants may be something else (easier to use, fewer features, return policy, etc). Think of the US car manufacturers that for decades were trying to beat their competition with faster/bigger cars, while Japanese auto manufacturers were responding to shifting market needs and eating their lunch.

Apple is a great example of a company that ignores the competition and focuses on their customers. If they focused on their competition, they would not have created the iPod to compete against Sony; they would not have created the App Store to get into the music business; they would not have entered the phone business; and they would not have created the iPad to start competing against that other digital behemoth Amazon.

There are several reasons not to focus or dwell on competitors:

-         The competitor’s focus may not be the same as yours. For example, a major product line for you might be a side offering for your competition.

-         You’re indirectly ascribing a certain business or market acumen they may not deserve. Are you sure they know more about the market than you do?

-         Competitors can make mistakes. Do you want to follow in their footsteps?

-         Following competitors is a weakened position. Your employees and customers will not view your company in a leadership position. This may impact innovation, sales, press coverage etc.

Having said this, there are situations where attention to competitors must be paid:

-         A distracted competitor offers a huge opportunity.  For instance, if they’re dealing with a possible merger, acquisition, or facing a legal problem, they may not be paying attention to their customers – thus offering an opportunity for you.

-         Competitors define the overall market landscape.  And therefore are necessary for understanding the shifts in a constantly changing business environment or identifying new offerings within the market.

-         Some competitors may have figured out better ways to engage customers. When you have not done your job and competitors have done it for you – by satisfying the market needs.

So how do you uncover those gaps and opportunities that elude your competitors? There are at least two ways – formal competitive intelligence for strategic, insightful, due diligence, and informal observation, as an indicator to monitor or further research.

An example of an informal observation is McDonald’s. The company never set out to compete with Starbucks, but when they noticed that a sizeable number of customers were coming into McD’s carrying cups of Starbucks, they conducted formal market intelligence to determine if offering coffee would be a good move. Now the company offers better quality coffee leading to higher sales and saving their customer base an additional trip to Starbucks.

The clear objective in business is to satisfy customers – and do it over and over and over again. Many companies believe that once they offer customers what they want, the customer will stay with them and be satisfied. There’s just one problem with this thinking. Products and services are constantly being improved.  So, what you did yesterday may be no big deal today. And if your competitors copy you, then the differentiating factor no longer exists.

As if that’s not enough, it’s a big investment (and a pain) for companies to constantly make changes to suit their customers, but if they don’t, they should not be surprised or angry when another company comes in and does.

This is where competitive intelligence pays off. It focuses on the entire marketplace, of which customers and competitors are segments – among many - and it seeks to uncover what’s changing and emerging, to give your firm the competitive advantage.

Take a leaf from Steve Jobs’ book. Customers will buy your product if they want it. Even in a recession. Even if it’s expensive. Even if they don’t “need” it.  

Sam Walton stated “You guys (manufacturers) are always trying to sell me more Tide.  I really don’t care if I sell Tide or Fab.  I just want to sell what the consumer wants.” It worked out pretty well for him.

Seena Sharp is a pioneer, founding the first market intelligence firm in the US, Sharp Market Intelligence, following a successful corporate career in New York City. Read her new book, Competitive Intelligence Advantage for pragmatic insights and actions to reduce risk, avoid being blindsided, and make smarter strategic decisions the first time. Seena is a popular speaker globally, and has written dozens of business articles.

Your pricing strategy can make or break your company

I’ve been very busy recently working with several clients, one of which needed strategic assessments of entering the Smart Grid market. And a big part of the assessment had to do with the pricing model for this new vertical.

As you can imagine, pricing model has a direct impact on the top-line, the bottom-line, and sales volume, and can effectively make or break a company – or make it float around in mediocrity, as is sometimes the case.

Before I get into details, I should say that I have no background in consumer goods where pricing is a whole different beast to tackle. I have no idea how the following applies to consumer goods, though I suspect the general principles apply to business uniformly.

Market-based vs. cost-based pricing. Amazingly, some companies still base their pricing model on their cost. Here’s my comeback to this concept: whether a product costs you $100 or $1,000, if the market pays $800 for it, that’s where you should price it. Otherwise you’re either leaving money on the table or pricing yourself out.  If you can’t make the desired margins, you need to create value, change your target market, or change your offering.

Creating value. The market pays for value, and you can’t expect it to extract the value from your offering without your help. Every target demographic needs to be considered in creating the value. Whether it’s the ‘cool’ factor, functionality, reliability, time-savings, cost-savings, or otherwise, clearly communicate the value to each set of your demographics. Products don’t sell themselves, people sell them – and they do it by creating value. Tactful positioning comes in handy for creating value. Apple is a company that consistently does a great job at creating real value (great products) plus perceived value (cool factor).

Competition. It shouldn’t be a surprise that if there’s little competition in your market, you can charge higher for your products and services. Needless to say, you need to continually monitor your market for competition. And if your market finally does get targeted by competition, value creation will help you edge ahead of them.

Price wars. Alternatively, in markets with a lot of competition, it’s easy to fall into the “price war” trap. This is typical in commoditized markets, or those in which innovation has worn off (like the PC market). The best way to avoid price wars is to add value, reposition, or accelerate innovation. Without continued innovation, value eventually wears off. Sometimes it’s not worth staying in a market with continual price wars, and it’s best to get out. IBM got out of the PC business mostly for this reason.

Growth markets vs. established markets. The general rule is that growth markets afford higher prices. Market excitement, lack of competition, and the general “first to anything” mentality with growth markets allows for higher prices. Don’t be afraid to use this to your advantage. Eventually, with additional players and sizzle fatigue, prices will go lower.

If in doubt, start high. If you’ve been in the business long enough, you probably have a pretty good idea of the price the market will bear, but in new verticals, this can get tricky, and sometimes it becomes difficult to figure out a good pricing model. When in doubt, start high. The market will quickly let you know if you’re overpriced and you can always lower your prices, but increasing your prices will be much more difficult.

The market talks back – only if your price is too high. As I mentioned, the market will quickly let you know if you’re overpriced. Here’s the trick, it will hardly ever tell you if you’re under-priced. You could be happy selling high volumes of your products not realizing that you’re leaving 20% on the table. How about implementing a better pricing model that will increase your top-line by 20%, or add 50% to your net margin?

Life-cycle pricing. This topic deserves its own article, but it’s important to keep an eye on the market as the product or service grows, picks up momentum, and nears its “end of life”. The product or service needs to be actively re-priced throughout its life-cycle from launch, mid-life, to end-life. For example, production costs or support/maintenance costs could be much higher for older products or services, causing the margins to deteriorate with lowered pricing. Continual business analysis can bring this to light in order to shelf older products and services, and charge more for newer ones.

Lastly, don't be afraid to charge higher for your products and services. Create value and don’t leave money on the table. Remember, you can always lower your prices, but increasing them is much more difficult.

I’d love to hear your stories of pricing genius or mishaps.

Smart Grid Dynamic Pricing: Behavior Change Easier Said than Done

You might be wondering why you’re hearing so much about smart grids and smart metering lately, and what the big deal is. The big deal is that the ramifications of “smarting” US’ electric grid systems will touch upon multiple aspects of business and policy from consumer protection, to federal budget allocations, and most relevant to the readers of this blog, the opportunities it will provide for high tech companies providing services and technologies. And the show has just begun.

I was asked again by TMCnet.com to write another article about Smart Grids. It’s sure to ruffle some feathers, particularly for the players in the smart grid markets, but that should be expected about opinions about any new market with new technologies.

I’d be interested to see what everyone thinks. Here’s the link to the article.

8 clues to your company's health: detected in your org chart

I posted this article some time last year, and it is still one of my most popular blogs, regularly getting hits through search engines. I thought I'd update it and give it another life.

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Org charts are fascinating (living, breathing, pulsating) organisms. I didn’t always see things this way. I remember being a number in an org chart and hating it. I was one of 100,000 employees working for Corporation X many years ago, and whenever I looked at an org chart, all I saw was hierarchy. Who reported to whom? Who moved to the side? Who moved up? And why didn’t anyone ever move down? Some people sucked at what they did, and they kept getting “demoted up” – a promotion to get them out of the way.

It took me a few years to understand the true meaning conveyed by org charts: power plays, strengths, and management mistakes. I’ve now seen more org charts than I can count, and I routinely review them as a visual representation of the company’s strengths and weaknesses, and misplaced focus.

A few on my laundry list.

Ownership. I look for “ownership” of every important function on the org chart. If no one “owns” a specific function, who is in charge of it? One of my recent clients had no single person in charge of sales. Why? Because the CEO, the president, the director of sales, and the sales staff were all "in charge" of sales. Once we reorganized and put the director of sales in charge, he cleaned up the organization and focused the team, resulting in significant sales improvements within just a few months.

Organizational depth. Do you really need all those mid-level managers at the company? As is the case with many large corporations, the unhealthy "fat in the middle" takes up a lot of resources and spews out bureaucracy. Legal issues aside, it makes sense to clean out the middle layer every 3-4 years, especially those who have very few staff reporting to them (you know what they look like on the org chart, elongated org shapes with few direct reports). Because of their experience, they can always be reassigned as line managers, special projects, etc., but I say the ones who have been demoted up take a hike.

Marketing. One of the most misunderstood functions in most companies. I personally view it as a more strategic function, but it does span a wide range of strategic and tactical activities. How a company treats marketing says much about their focus. Having a “sales and marketing” department forces the marketing function to become more tactical. “Marketing and advertising” suites brand conscious companies and is tactical by nature. For high tech companies I prefer to see marketing as a stand-alone function and much more strategy focused. For non-manufacturing SMBs, I’d like to see a minimum of one marketing staff for every 15-20 employees. Anything less than that and your sales will suffer.

Sales. It’s amazing how many companies have the wrong sales functions to match their product or service offering. A vertical market focus in the sales department is suitable for sophisticated product lines, and a geographical focus is more suitable for commoditized products. Mixing the two will create havoc. The titles alone portray much about the company’s focus. Have you hired sales, business development, or account managers? Does this match the product line? I recently talked to a CEO who had mistakenly hired account management types to generate new sales. Over a year later, he was still wondering why he was having sales problems. Also, is channel sales separated from direct sales? If not, the channel partnerships will suffer.

R&D. For high-tech companies, I’d like to see a stand-alone R&D organization. Mixing R&D with Engineering dilutes the strategic focus of the company. The engineering team takes the product to launch which is tactical by default. R&D needs to focus on future product lines and shouldn’t get bogged down by day-to-day tactics.

Quality & Assurance (QA). Again, for high tech companies, QA should be separated from engineering, otherwise, product quality is compromised. You need the negotiation between the two groups, and having one function report to the other doesn’t work well.

Human Resources. I’d like to see this as a straight line to the top management (president, COO, or CEO). Most companies organically leave the human resources function under the CFO or VP of Finance. This shows cost consciousness and lack of focus on human resource development.

Operations. Another area that routinely falls under finance to keep the costs down. This should also be a straight line to the top (or in smaller companies, handled by the top position in the company), as it spans the entire company. Operations and finance should be in position of negotiating together and one reporting to the other compromises operational efficiency.


I’d love to hear your stories. What do you see on your company’s org chart? Does it match your company’s mission and corporate values? If not, it might be time for change management (let's talk!).

And let’s hope “demoting up” is eliminated for good. Please tell me it is.

Twitter bows to corporate advertisers, shuns average users: good bye social media, hello corporate advertising

Last summer Twitter made a lot of headline news for its explosive growth without a clear plan for a business model. I blogged about the company twice during that time, once to discuss their lack of revenue model, and another time when the company was being publicly dissed by VCs for… their lack of revenue model.

On Tuesday Twitter announced their long awaited revenue model.

The ad based program called “Promoted Tweets” allows companies to purchase “ads” for the search keywords so that their tweets show up higher in the list. Now businesses will be able to push their Tweets up higher in the feed, blocking out discussions by, say, dissatisfied customers, or during a major public relations fiasco. Toyota would have loved this feature during their recent recall.

In the next phase, Twitter will allow “ads” to randomly show up in the feeds for people it deems interested. So if I’ve Tweeted about my blog on Starbucks’ debranding, Twitter will decide I’m interested in Starbucks’ products and will randomly push the company’s promotional ads down my throat.

Good grief! This effectively wipes out the level playing field all accounts, whether individual or corporate accounts, had in the past. Good bye social networking, hello corporate advertising.

Since Twitter started in 2007, it’s shown phenomenal growth, with over 22 million unique visitors in March 2010, up from just over half a million a year ago. That’s an envious position for a startup, and of course there was a need for a solid revenue plan for the company. But this will change the face of Twitter as we know it, and I’m not sure for the better (I’m willing to be convinced otherwise).

The New York Times quoted Dick Costolo, Twitter’s COO as saying: “The ability of companies to engage with customers around this interest graph is more compelling than trying to wedge yourself into these social interactions.”

Really? “These social interactions” were what Twitter was supposed to be all about.

Before you know it, Twitter will be taken over by ads by corporate big-wigs essentially drowning out the collective voices of average users, and bloggers like me. Hey, maybe that’s what my beef is all about!

I’ve been quiet recently since I’m wrapping up major projects for two clients this month, and also tending to my mother who has been ill (we’re hoping she’ll be fine, thank you). But I’m already working on some interesting blogs coming up soon, so stay tuned and come back!

Branding in a green world: how to target a wide audience with green products

I asked Leon Kaye from www.GreenGoPost.com to guest blog for me this week. Leon is one of the few voices that hold the fine line between “green” progressiveness and business pragmatics.

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Despite the economic downturn, companies and consumers continue to demonstrate an interest in green products and sustainable business practices due to concerns about energy independence, the world we will leave for future generations, waste management, environmental pollution, and the general desire for a healthier lifestyle.

Unfortunately, many companies offering “green” products have difficulty in communicating their message properly. Some simply fall into the trap of slapping such labels as “natural,” “green,” and “eco-friendly” like logos on their products. Others determine that the “green” consumer segment is too narrow to pursue. And meanwhile, the pitfall of screeching “WE’RE GREEN!” to the market may turn away shoppers who are averse to sanctimonious preaching.

Companies often become frustrated in identifying a strong green brand because of their failure in two areas:

- Brand attachment: developing a strong emotional attachment between their brand and their customer base.

- Target audience: conveying a broad solution for the general market without zeroing in on a specific consumer behavior or trait.

Brand attachment involves four stages of consumer behavior. Let’s use the supermarket chain, Trader Joe’s, as an example:

Brand consciousness. The customer hears a TJ’s ad, starts shopping there, enjoys the consumer experience, and appreciates the fact that they offer organic or vegetarian products.

Brand preference. Over time, the customer determines that shopping at Trader Joe’s makes him/her a healthier person, and feels their products are reliable and well-priced.

Brand dedication. The customer internalizes the TJ brand’s core values and messages, and believes he/she is in the demographics to which TJ markets: single person or young couple who live the bourgeois bohemian (bobo) lifestyle.

Brand affection. Even if the competitor has better prices (Fresh & Easy) or superior quality (Whole Foods), the customer’s commitment to TJ’s is such that he/she becomes a proud alpha-consumer, and will happily pay a premium for their goods.

The goal of attaining a strong brand attachment is reaching the last stage. Many companies in the green space try to skip from steps 1 to 4 by slapping on a few trendy words or a tagline in their marketing efforts. But in order to forge a brand identity that will strongly resonate with their customers, they need consistent branding practices that gradually drive the customer from the “brand consciousness” stage to the “brand affection” stage.

The second point of branding, target audience, is a bit more difficult. The idea is to become indispensible to a wide spectrum of consumers. Without appealing to a wide audience, the company and its products become marginalized within a narrow market segment, and fail to generate optimum revenues.

San Francisco-based Method tackles this issue brilliantly. Method’s products are 100% plant based and are offered in recycled plastic bottles. Their product line is about as green/eco-friendly/sustainable/natural as you can get. Nevertheless, you do not find these overused terms in their literature. Note their tag lines: “people against dirty” and “a cleaner clean.” Method’s management has found that consumers will pay a premium for quality, and their products convey technology, cleanliness, intelligence, and innovation – appealing to a wide audience.

Their strategy has worked. Who buys from Method? Parents who want a clean environment for their children, young professionals who want their space to smell good, real estate agents who want to buy nice housewarming gifts for their clients. And they buy Method’s products through Target, Lowe’s, Costco, and Bed Bath & Beyond: stores that appeal to a wide audience, and are known for their competitive pricing while selling environmentally friendly products without bombarding consumers with bland “green” messages.

These points are just the beginning in building a strong green brand. The main idea is that being green is more than putting a leaf on the bottle and saying you are saving the planet: your company’s brand needs to demonstrate inclusiveness while making customers feel that you are making their life easier. It’s great to recycle, but companies need to stop recycling the same old tired words.

If you or your clients have asked you to work on a green branding or marketing campaign, we would like to hear your experiences!

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With 15 years in sales training and international business development, Leon Kaye has most recently developed corporate sustainability strategies and training programs. Earlier in his career, he lived in South Korea in the mid-90s. Mr. Kaye then moved back to the US to lead IT and sales training projects, and later, he sold business services to large corporations. A Silicon Valley native, he currently lives in Los Angeles, where he is editor of www.GreenGoPost.com and leads GGP Media.

Why branding strategy and change management are inseparable

Happy 2010! I wish you all the best, health, success, and prosperity this year and beyond.

I’ve been quiet over the past few weeks mostly because of the holidays, but also because I’ve been insanely busy with strategic branding projects for two clients. People think of a brand in terms of a name and a logo – generally a visual look along with a name that’s recognizable, like Coca Cola or IBM. But Coca Cola and IBM didn’t become what they are from their names or logos.

Here’s how I define a brand: an identity. And an identity is a lot more than a name and a logo. It’s how the company operates, how it’s perceived, how it sees itself. It’s an all encompassing exclusive idea that is embodied in all the offerings and communications, and has the power to change perception and preference. It switches rational analysis to an immediate emotional reaction.

Case in point I: Apple. An all encompassing brand, provoking immediate emotional reactions.
Case in point II: Enron. An all encompassing brand, provoking immediate emotional reactions.

See how powerful a brand is? (yes, a brand can be negative – remember, it’s an identity)

In order to strategically brand (or rebrand) a company, i.e., discovering its identity, three criteria need to be examined:

1) Where is the company at?
2) Where does it need to be?
3) How is it going to get there?

The reason for the breakdown is that the business world is non-static: companies change, product offerings evolve, executives (and therefore their strengths) move around, new markets develop, old markets get commoditized. And sometimes in a short amount of time, a company can find itself in the wrong space in the market with little customer traction and downward revenues.

Where is the company at?

This is probably one of the more difficult exercises for companies to perform (I compare it to therapy). It involves taking a deep look at your strengths and weaknesses in the product line, the service offering, the staff, and the operations to answer the question: who are we and what is our purpose? How an organization identified itself, say, 5 years ago, can be drastically different from its current position. And because of the dynamics I mentioned, this exercise often uncovers surprises along the way (that shouldn’t really surprise anyone).

Where does the company need to be?

This involves taking the binoculars and taking a far and wide look at the market and where the company needs to be. Two major mistakes are made in this exercise:

1) Going after a busy space with a lot of competition (if they’re all selling red balloons, we should be doing the same). This can be the topic of several blogs on its own, but the idea is to move into an empty space: less competition = more money.

2) Not moving far enough from the current position. It’s easy to stick around where you are, but if where you are is such a great space, why aren’t you making money? This takes a lot of guts and ambition, but sometimes where the company needs to be is far away from its current position. As long as the expectations are reasonable and realistic, it’s best to be honest about where the company needs to be regardless of how hard it’ll be to get there.

How is the company going to get there?

Believe it or not, this falls into place faster than most people expect. Once the picture is clear as to where the company is and where it needs to be, the actions that need to be taken become very clear, very fast. This is where change management comes into play: shuffling the staff, redoing the product line, repositioning the company, and communicating internally and externally. This is an emotional process that I’ve written about it in the past, but it is very rewarding with the right tools and processes in place.


The visual identity, corporate messaging, product naming, and a host of other activities that are typically considered “branding” are the result of the changes that occur as the company defines its identity and its place in the world.

This is a scratch on the surface for branding/rebranding companies – there’s so much more that comes into play which makes our jobs more interesting and rewarding. But I want to leave you with this: if someone tells you they are a brand strategist, the first thing you should find out is how much they know about change management. It’ll save you a lot of headache down the line.

How to legally protect your business during layoffs

I’ve asked attorney and law professor Melanie Calvert to give us some pointers about legal considerations to protect your business during layoffs. Hopefully your business is thriving and there’s no need for this!

Keep in mind these laws are specific to the state of California. Though some labor laws overlap in various states, it’s highly recommended that you consult a labor attorney in your state for specific laws applicable to your business.

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In the coming year, companies may have to continue down-sizing to stay in business, to maintain sufficient operating capital, or to obtain necessary bank funding. There are few considerations you should keep in mind prior to and during layoffs:

The employees’ job function. Employees should update their job descriptions and the time allocated to functional tasks. This will permit assessment of essential duties, duties which may be combined with duties of others and those duties which are marginal to business operations. Employers may achieve cost savings by consolidating employees’ duties.

Talent pool and experience. Employers should value seniority, job performance and special skills and job knowledge which employees have acquired from the job. If the economy improves, and employers need to hire again, it is expensive to train new employees and bring them up to speed.

Selection criteria. Employers should select employees for layoff based on objective criteria such as job functions, responsibility, seniority, performance, skills and knowledge. There are good reasons not to include an employee in a layoff. Since these reasons are too varied to enumerate, you should consult an employment attorney. Generally, employers should not lay off employees who have filed recent discrimination complaints. On the other hand, employers may (in certain circumstances) layoff employees who are on pregnancy-disability leave. Generally, employers should not immediately hire new employees to replace the laid-off employees. This undermines the economic reason for the layoff. For the same reason, it is probably unwise to give pay increases to the remaining work force. Again, each situation is factually specific and requires the advice of employment counsel.

Heads-up. California WARN law applies to certain layoffs, business relocations and/or business cessations at companies that employ, or have employed within the preceding twelve months, 75 or more persons. Generally, this law requires sixty days notice to affected employees and to designated governmental entities and has a maximum penalty of sixty days pay (unless an exemption applies). While federal WARN law is different, it also requires notice or pay.

Health insurance. If your company provides health insurance, promptly notify your health insurance administrator to send out required notices including HIPPA and COBRA health insurance continuation.

Last pay check. Pay employees all wages which are due at the time of termination including, but not limited to, all accrued vacation, bonuses and commissions. Promptly reimburse employees for company expenses when submitted. Obtain employees’ acknowledgment of receipt for wages and expenses.

Unemployment insurance. Provide employees with Notice of Change in Relationship and a copy of the Employment Development Department bulletin. Unless the employee has committed intentional misconduct which harms the company’s business or has voluntarily left employment without good cause, do not fight unemployment benefits. Your experience rating will go up but you will obtain employees’ good-will and help company morale.

Company property and information. Have your employees acknowledge return of all company property and information. As a general company practice, change all computer pass codes and keys (if employees had keys to company offices).

Neutral job reference. Give dates of employment and last position (unless employee poses a documented threat to the safety of others).

Separation pay, outplacement assistance, and a release. To assist employees in transition, consider offering outplacement assistance, and additional separation pay, if employees sign a release and agreement not to sue.

Older workers (40 or over). If you pay older workers for a release (agreement not to sue), you must comply with each requirement in the Older Workers’ Benefit Protection Act.

Exit interview. Consider a feedback form for employees to comment on their work experiences.


Bio: Attorney, Melanie Calvert, has practiced labor and employment law since 1985. She was nominated as one of the best labor and employment attorneys in The Pasadena Magazine (November 2009). Melanie is also an adjunct faculty professor at the University of La Verne Law School, Ontario, California. More at: www.calvertlaborlaw.com.

In search of “synergy” in corporate partnerships, and mergers and acquisitions

As the readers of my blog know, I’m a strong proponent of corporate partnerships. I believe with a good partnership in place, each company can focus on their core competencies while relying on the partner to complement their product or service line, accelerate their market expansion, or help in areas of weakness like customer care, distribution, or geographic expansion. In hard economic times, the need for partnerships becomes more acute – as the market becomes more and more selective, business weakness becomes amplified, and the need to provide the most complete and the best solutions pushes companies into partnerships or downright M&A. In a nutshell, companies look for relationships with “synergy” (ugh, that yucky word from the 90s, but it captures the essence so well – I’m open to other words, let me know what you got!).

I’m on record comparing business relationships to dating . Hostile takeovers aside, the reason business relationships work is because people on both sides spent time to select the right “match”, communicated the desired outcome in detail, and put a lot of energy into integration after the fact. Here’s a factoid I’ve shared in the past: 50% of M&As end in failure, closely matching the US divorce rate. Obviously not everyone gets it right.

Let’s take a look at Cisco. The king of acquisitions has swallowed up no less than 81 companies since 2000. The key to their success: proper selection, and masterful integration. I doubt if Cisco would claim 100% success rate with all their acquisitions, but it is no surprise that Cisco’s revenues have been on an almost straight upwards trajectory over the years. On the other end of the spectrum is eBay with very few M&As or partnerships. One acquisition was Paypal which was an excellent choice (I mean, seriously, they must have been blind not to see that one). Another one was Skype which was a perfect example of poor “synergy” – exactly, what were they thinking? (eBay recently sold off the majority shares in Skype)

For small and mid-sized companies, M&As may be a far out idea, but the need for corporate partnerships is even more pronounced than for larger corporations. With limited resources, these companies need to focus on their core competencies, and having a solid partner either in distribution, product line or geographic expansion, becomes necessary. Over the course of my career, I’ve developed or maintained several corporate partnerships. They all were “synergistic” in either product line or service offering. With the exception of one that ended quickly, they all generated more revenues for both companies. They all required careful selection, tight integration, and constant attention in order to succeed.

Perhaps I was lucky to have been involved with successful corporate relationships, but I think at a high level, specific contributing factors were involved in their success. I’ll list some of them here. I’ll be the first to say it’s easier said than done, but these are the absolute basics to make a business relationship work.

Ownership. Someone (or an organization) needs to be in charge of making sure relationships are a success. It doesn’t mean they do all the work, but they’re in charge of bringing the right people together to make it happen. Without ownership, things fall apart.

Needs definition. Define why a relationship is necessary, e.g., product line expansion, service offering strength, distribution, geographic expansion, IP acquisition, etc. Do you need a relationship for market acceleration, market expansion, or new market entry? This is where your selection criteria crystallize.

Selection. This is one of the most important steps in the process and needs careful attention to industry sector, product line, geographic expansion, etc. You may develop more than one relationship in the same area. And, oh, by the way, the other side should want to “be in bed” with you too.

Communication. Once you’ve selected a potential partner, hash out everything you can think of prior to the contract being signed including roles/responsibilities, financial obligations, integration process, consequences of anything that can go wrong, and…. exit strategy.

Integration. This is when the real work begins with personnel assignments, rolling out the relationship internally, training, re-organizations, etc. This is where most relationships fail to realize their potential. Plan thoroughly. Implement diligently.

Maintenance. You’re never done as long as the relationship is alive. Keep monitoring the success of the relationship. Things change over time, and you may reset and restarts certain parts of the relationship.

As I mentioned, this is a very high level and basic list of steps to take in developing corporate relationships. I’d love to hear about what other criteria you have faced that contributed to success of corporate relationships. What doomed them? Bring on the discussions!