Acclaro Growth Partners' M&A and Strategy Weblog

Examples of Strategic Research-Based Consulting Projects

After years of working on strategic research assignments, we recognized that a comprehensive list of project types would be helpful for clients and prospects.  There are nine types of strategic research projects that we have conducted.  Reviewing this list may help you in determining of you have a strategic research need, and how to describe the need to ensure a strategic research firm is focused on the appropriate task at hand.

New market entry Go/No Go support -- Assessing the size, growth prospects, opportunities and threats, critical success factors, trends and dynamics, customer needs and competitor capabilities and intentions can be extremely helpful in making a decision about whether a new market is worthy of entry.

Market map.  Particularly helpful for a CEO who is new to the organization and the industry sector, a market map provides a detailed primer on the landscape of the marketplace, customer segments, competitive positioning, market opportunities and threats -- as it all stands today. 

Prioritizing channel partners for quick wins and growth – We research and report on the down and dirty of which trade shows to attend, which journals to buy, where to promote and advertise, how to influence and build the brand for the marketplace, which partners to seek alliances with, etc.

Developing a three year plan with goals, tactics, milestones, champions, accountabilities – We create a tactical roadmap designed to fulfill the strategic goal(s) of the company or business unit.  After conducting external research, in tandem with management, we offer analysis, options, and recommendations.  After discussing our recommendations and managament's ideas, we collaboratively develop the actionable plan for management to execute over time.

Evaluating an existing business plan and suggesting improvements –   We have evaluated, after conducting extensive external research, the elements of the company’s existing strategy using simple evaluation criteria.  We then offer up recommendations of our own to augment this strategy. 

Prioritizing market segments for growth – No company can, or should, pursue every segment with equal energy.  We determine which product, end-use, or application segments represent the greatest opportunities for growth.

 

Prioritizing customer segments by geography, product area, or channel -- Extensive qualitative feedback from customers on expected purchase volume levels, loyalties to existing suppliers, unmet needs, switching costs, and purchase decision criteria can be quite helpful in deciding where to focus sales resources.

 

Merger/Acquisition Market Due Diligence -- We evaluate the target's marketplace to determine its attractiveness, their customers to determine loyalty, and the competitors to understand their capabilities and intentions.  In the end, we offer a "thumbs-up" or a "thumbs-down" on the attractiveness of the acquisition or merger target.

 

Help solve an external market, competitor, customer, or supplier "problem "-- Solving large-scale problems, that are not going away on their own, often requires facts and analysis.  We identify the opportuniites and lessons to be learned from a dying market, a major lost customer account, or a formidable competitive rival.

Considering each of these nine examples, are there situations or scenarios that your company is facing that could benefit from external strategic research?  If so, feel free to call Kit Lisle, our Managing Partner on 703.860.3355 with any questions or comments or feel free to contact him via email: kit@acclaropartners.com 

Our web address is www.acclaropartners.com

Organizing Sales Assets for Maximum Effectiveness

Primary research, which for us means telephone conversations with customers, competitors, and other market experts, can be extremely useful in determining how to orient salespeople.  Whether your salespeople are organized by geographic regions, product types, end-use markets or application areas -- primary research will result in cold, had, facts to help you decide where to apply more and fewer resources.  And doing so, will help you take advantage of opportunities you would otherwise be likely to miss.

From a geographic standpoint, suppose you have sales assets spread throughout Europe, haphazardly covering the continent largely based on where these salespeople happen to live.  Wouldn't it be nice to know that customers in the Benelux countries are most likely to have a high need for your product.  Or that customers in Scandinavia not only have a need, but place "Price" as very low on their hierarchy of purchase decision criteria.  Or that customers in Poland feel ignored because there are no suppliers nor sales reps appropriately serving that market...These kinds of insights, combined with the knowledge of where competitors are active, and where customers have relatively low interest levels, can be quite helpful in helping you decide where to allocate your sales resources.

And if your salespeople are organized by product area or end-use application area and not by region, it can be equally important to conduct primary research.  Rather than reactively assigning salespeople to product areas that have historically high levels of demand, proactively place salespeople where demand is on the increase.  The best way to do this is to have a qualified, objective, third-party develop insightful, dynamic, two-sided conversations with customers.  The issues to address with these customers, prospects, and lost accounts include unmet needs, trends and dynamics, purchase volume expectations, switching costs, purchase decision criteria, and so on.  Comparing the opportunities across major product areas will enable you to decide where to allocate more sales resources.

Similarly, if your sales team is organized by end-use application or end-use market served, you will want to conduct primary research to address these same issues -- unmet needs, trends and dynamics, purchase volume expectations, switching costs, purchase decision criteria.  And you will compare the presumed opportunities of each end-use application or market served.  The most exciting ones are obviously where you will apply more sales resources.

Applying sales resources based purely on historical sales volumes is worse than looking in the rear view mirror.  You may be missing out on opportunities in which the customer locks in a relationship or prefers a sole-supply situation.

Primary research results in the quantitative and qualitative insights that enable you to allocate sales resources proactively to take advantage of current, and future, customer requirements. 

Gradual Improvement in Deal Flow Activity

As a business strategy due diligence consulting firm partnering with many of the leading middle market private equity firms, Acclaro Growth Partners has a front row seat on the state of private equity acquisition activity in the middle market.

In spite of a general slowdown in deal activity that began in the latter half of 2007 the middle market we support outperformed the overall market through the first three quarters of 2008. However, deal flow in all segments came to a screeching halt when the credit markets froze in September of 2008. New deals involving platform companies continued to languish through the first half of 2009 but an increase in portfolio company strategy development and “bolt on” company acquisition helped to offset the lack of platform acquisitions.

However, the good news is that the level of activity is slowly improving. A number of factors are contributing to the improving environment.

1.    An improving economy

2.    An improving stock market

3.    Improving credit markets and availability of debt financing

4.    Improved portfolio company performance

5.    Ability to place valuations on corporate assets

At the same time the structure of the deal continues to evolve in ways that differ significantly from the pre-2008 structure. Today the deal is likely to:

1.    Consist of a higher equity percentage, 50/60% versus 20/30%

2.    Debt financing remains difficult and expensive - but increasingly available

3.    Earn outs, seller financing and rollover equity are frequently components of the deal

While the environment is improving and is expected to continue to gradually improve, the days of acquisitions that are highly leveraged, cheaply financed with a high likelihood of assured returns is currently a thing of the past. With so many added risk factors and a reduced margin of error it is understandable that private equity groups are turning more frequently to third party business due diligence firms to assist them with their business due diligence and evaluation of the business thesis of the target firm.   

High Level Retail and Consumer Trends (Based on 2009 Projects)

Considering our retail and consumer project experiences in 2009, we came up with a list of five trends that seem to be fairly pervasive.  Two concern retailer expectations for consumer product suppliers.  And three involve opportunities that retailers are seizing on their own.  Below we share with you our observations:

Retailers are increasingly relying on vendors for category management – A concept that Wal-Mart started decades ago is now the norm rather than the exception across almost all retail channels.  Retailers recognize that their vendors have their fingers on the changing pulse of the consumer in their category far better than they do.

Retail store layout changes are far more dynamic than in the past – Floor plans are changing more quickly than ever to accommodate emerging niches such as wellness, organic, convenience.  Numbers don’t lie and retailers will do anything to optimize their sales per square foot.

Green vendors are in demand – Green is rapidly becoming a critical attribute in almost every consumer category.  Expansion of ingredient labeling is bringing it to the forefront.  Supply chain optimization to reduce your carbon footprint now a major talking point.  Watch Earth Day 2010 as an indicator of this trend….

Consumer price sensitivity has professionalized store brand management – Generic store brands are bigger than ever.  Retailers are hiring top guns from consumer package goods companies to build their store brands and are using the same branded consumer product goods rigor to do it.

China is now more than just a source of cheap product – With US consumption in the doldrums, and western Europe not much better, many consumer product companies and retailers are looking east for growth.  While expectations are modest, getting the experience early is expected to generate leadership over the long run.

For a more detailed examination of the issues, to think through implications for your company, or to pose a question, simply give us a call or send an email.  Kit Lisle is the Managing Partner, and can be reached on 703.860.3355 x105 or by email, kit@acclaropartners.com

 

“Co-Investing” in Strategic Research Projects

Companies considering hiring research-based strategy consulting firms may wish to consider a creative approach to selecting their next vendor.  “Co-investment” requires a prospective new vendor to invest in the project, in the form of some pro-bono work during the project framing and scoping stage.

 

There are four pre-conditions for this arrangement:

 

·         Your company should be struggling with a rather strategic decision – new market entry, acquisition, coping with a new competitive threat, handling a new customer opportunity, etc.

·         You are not entirely sure whether to proceed with the project – you need more data.

·         You are able to boil the major issues or concerns down to one research objective at this stage.

·         One consulting firm is particularly compelling, but you have no experience with this firm, and need a live example to see what they can do.

 

In contemplating your company’s strategic decision, there may be a recognition that more facts and data are needed in order to make the decision.  At this point, it is not clear if the research should be outsourced.

 

It would be helpful to better understand the benefits of working with an outside vendor.  A live, relevant example of the quality of output that could be expected would facilitate a comparison of internal value vs. external value.  And perhaps seeing the answer to a particularly nagging or poignant question would help to frame the entire project.  Suppose the strategic decision that you are making involves new market entry.  At this stage, learning about the growth rate of this new market would be particularly helpful.  If the growth rate is slow or negative, market entry is not warranted (and the project might not be, either).

 

Boiling your major concerns or questions down to one issue for the consulting firm to study is not easy.  Depending on the strategic decision you are trying to make, the key issue may involve a competitor capability or direction, a customer segment’s unmet needs or purchase decision criteria, a market’s size or growth, or issues related to trends or dynamics in the market.  The issue that you decide upon should be clear and “self-contained” enough that the potential vendor can conduct the research necessary to address the issue in a week or two.

 

The prospective consulting firm may be interesting and compelling, but you have never worked with them before.  Getting a taste of their capabilities before shelling out the big bucks could be quite helpful.  Quality of the data, quality of their interaction with your firm, and the analysis and actionability of their recommendations can all be tested.  By the end of the one-to-two week exercise, you should definitely have a better sense of whether you feel comfortable working with this group.

 

The consulting firm, meanwhile, is being asked to “invest” in this research.  They need to believe that they have a legitimate chance of winning a decent-sized project.  Candid conversations with the consulting firm and the client need to take place to iron out issues such as rough size and scope of the project, timeline, decisions being made as a result of the project, and the people involved in the project on the client end.  It is obviously the consulting firm’s prerogative to decline to take on the “coinvest” assignment.  In order to encourage the consulting firm to consider this arrangement, you may need to be candid about this firm’s likelihood of winning the real assignment.

 

After the “coinvest” one-to-two week project is complete, you can decide whether it makes sense to proceed with the real project or not, what the core issues are to study, and which firm you will be working with.  The creative approach can be highly beneficial.

 

Keep Acclaro Growth Partners in mind.  Our website is www.acclaropartners.com

 

"Co-Invest" Options for Pre-LOI Business/Market Due Diligence

Assumptions, assumptions, assumptions...In the weeks leading up to the presentation of a Letter of Intent, potential acquirers make many assumptions about the market positioning and business strategy of the acquisition target.  Some are bigger guesses than others (how much share will the company take from competitors).  Some are more important than others (how fast will the company grow its ebitda margins).  It makes sense to prioritize your laundry list of educated guesses down to one or two that are both a.) highly critical to your valuation model and b.) heavy on the "guess" and light on the "educated."

With only one or two important market/strategy issues to resolve and a week or two to gather data, you can decide if it makes sense to outsource the research.  A research-based strategy consulting firm is likely to get the work done faster, more objectively, and with more analytical rigor than an internal diligence team can -- mainly because the outsourced option is focused on the singular task at hand.

Paying for the pre-LOI research is a risky proposition.  What if you decide not to even submit the LOI?  What if you do not win exclusivity? What if the deal never closes?   Fortunately, some research-based strategy consulting firms are conducting this highly targeted, short-time frame research on a "co-invest" basis.  In other words, they are doing the pre-LOI research at no charge to their client under the assumption that they will win a larger market/strategy due diligence assignment if their client wins exclusivity.

So, for acquirers that have already vetted a business strategy due diligence consulting firm, feel comfortable with that firm, and intend to hire that firm for the full-blown diligence work, the pre-LOI research "co-invest" option may be a good idea.

The consulting firm will certainly have a leg up on its competition, and may be just as interested as you are in this concept!

Visit www.acclaropartners.com to learn more about our capabilities.

Considering New Market Entry? Learn the Eight Strategic Research Steps that Will Help You Decide on Whether to Pull the Trigger

As you contemplate a new market, put that market opportunity to the test.  There are eight simple questions to ask of your company and your potential new market.  Answering these questions may require some research, but will help ensure your company makes a sound decision.

 

1.    What are your core competencies and how well do they match the critical success factors for supplying this market?

2.    What is your unique value proposition for this market?  In other words, which of your core competencies are truly unique (versus competitors) and inherently valuable and necessary (to customers)?

3.    How attractive are customers in this market?  Do their purchase decision criteria align with your unique value proposition?  Are they willing to pay for your unique capabilities? Do they have consistent needs?  Are they willing to consider a new source of supply, or are they loyal to incumbent vendors?

4.    Is the price that your company expects to charge in line with customer expectations of value?

 

5.    Does your company have access to the channels necessary to reach end-customers?  How difficult will it be to access these requisite channels?

6.    Will your company be able to promote its unique capabilities effectively to build brand equity with customers?  Remember, customers brand you; you do not really brand your company.  And branding is a function of three steps: 1.) Customers must receive a clear message that is credible  2.) The message must convey uniqueness  3.  The unique characteristic must also be important and meaningful in the purchase decision process for the customer.

7.    Is your company truly unique versus the competition?  What are their strengths and weaknesses?  What direction are they heading in?  Where do they see the opportunities of the market, and how are they going after them?

8.    Is the market as large and attractive (in terms of growth and profit potential) as you think it might be?

 

These questions are not rhetorical; they require real answers.  And the answers should not be based on gut feel, historical experience and wishful thinking.  The answers should be grounded in facts, and lots of them.  So who conducts the research necessary to answer these questions? 

 

Acclaro Growth Partners is a research-based strategy consulting firm focused on helping clients make decisions based on facts.  New market entry is a typical decision in which we assist clients.  Contact me at kit@acclaropartners.com to learn more.

Uncertainty and Customers’ Product Life Cycles

It is often difficult to forecast customer demand.  And when your company is a component supplier for your customers’ end product platform, you must plan for your next few years of production capacity and top line revenue growth without a clear understanding of where your customers’ plans and businesses are going.

Your customers may not know or be willing to share the current lifespan of their platforms, the replacement / update schedule, and whether they intend to source from the same vendors in the next product cycle.  Often, the feedback you get from your customers can be misleading, overly optimistic, or may not take into consideration the competitive products or technologies that could overtake or replace their products earlier than expected.

When it is time to develop and replace a product platform, customers often put out RFPs and look for additional vendors.  There is always a risk that you, the incumbent supplier, will be replaced by another supplier – for cost or capability/service reasons.  Mitigate some of the risk associated with losing a contract renewal. The more information you have coming into the RFP process – and the more feedback and expert guidance you give your customers even before the RFP process – the better positioned you will be to be “spec’ed in” to the next proposal process.  Remember, you have the expertise in the components your customers are looking for, not them.  An understanding of how your customers’ needs will change from one cycle to the next, an understanding of competitive suppliers’ offerings, and an awareness of competing products or technologies that may challenge your customers’ products will put you in a better position to make a competitive, insightful, and best-fit proposal response.

To gain an accurate picture with the best possible forecast available, you have to tap the knowledge and expectations of multiple groups of organizations.  Customers, themselves, should be the starting point in solving the puzzle.  Other key component suppliers may have additional insights as to raw material shortages or early notification about production or technology changes.  Your customers’ competitors may be aware of market externalities that may affect demand and production levels, or they may be planning game-changing moves that your customers may not be privy to.

Those companies with a well-rounded understanding of how their customers use their products and how those products are situated in their respective markets will be able to react to market changes faster than those simply supplying product.  By understanding your customers’ processes and their product landscape, you can remain ahead of the curve, better plan your own production capacities, play an integral role in upcoming generation designs, and become more of a manufacturing partner than simply a commoditized supplier.

Prime-sourced, third-party research can shed light on the critical questions surrounding product life cycles:

p What is the typical life cycle of a product in this industry?  How often is it updated?  How frequently do radical improvements occur?

p What happens to older product generations?  Are they replaced immediately, or can they be counted for a period of continued revenue?

p How quickly will demand pick up or scale back throughout the product’s life cycle? 

pWhat are the triggers – both within your customers and external to the market – that will affect demand and supply?

To understand product life cycles, and therefore make production and development plans accordingly, you must be able to answer the questions above.  No single point of contact in the marketplace will have all the answers; instead, these issues for a puzzle for which the pieces are held by customers, competitors, suppliers, and channel partners.

Acclaro Growth Partners’ role is to gather the data, analyze it, and offer recommendations for your management team.  Our unique value involves our ability to conduct primary research objectively, quickly, and with actionable results.  Visit our website.

Portfolio Company Market Research to Support Actionable Planning

Portfolio Company CEOs who cannot articulate a clear, step-by-step path to growth over the next twelve to eighteen months are not being fired.  They are not being criticized.  They are not even evoking disappointment in the eyes of their board.  In fact, in this economy they are being supported, handed resources, and allowed time – time to conduct the fact-based research necessary to identify pockets of opportunity. 

 

The pockets of opportunity are out there – unmet needs of customers, prospects and even lost accounts speak volumes about opportunities, particularly when consistent themes emerge across customer segments.  And competitors who are asleep at the switch are missing out on market or customer opportunities – which presents opportunities for your portfolio company.  Moreover, competitors who are getting it right, who see a clear opportunity and are developing strategies and tactics to seize them, can be emulated.  Market trends and dynamics, constantly evolving, create opportunities for those who see the trends first and capitalize on them. 

 

While the opportunities are there for the taking, seeing them, gathering enough pieces of the mosaic-like puzzle to enable a clear picture to emerge, requires expert resources.  Look for research-based strategy consulting firms experienced in gathering detailed insights about obscure, niche sectors.  There are five critical criteria that should be evaluated when selecting a research-based strategy consulting firm to work with management to identify growth opportunities.

 

They should be able to gather plenty of data in segments where research may have never been conducted before.  And these research firms  should also be comfortable analyzing, developing options and presenting clear recommendations. 

 

These recommendations for management should be as actionable as possible.  Establishing rapport with management early, often, and with plenty of humility is a critical component of actionability.  If management does not feel comfortable with the messenger, it is unlikely to accept the message.  The analysis and recommendations should enable management to make a clear, simple decision based on plenty of supporting facts. 

 

The research should be designed, in other words, to test a hypothesis (do we enter this new market or not; do we develop this new channel or not; do we enter this new geographic market or not; etc.). 

In conclusion, there are five critical criteria to evaluate in selecting a research-based strategy consulting firmto work with your portfolio company:

 

 

 

1. Ability to design the project to test an hypothesis or hypotheses

2. Competence in developing rapport with management

3. Proven skills in conducting deep-dive research in obscure, niche markets

4. Delivery beyond research -- to analysis, options, and recommendations

5. Segue directly to a tangible, tactical roadmap to growth developed in concert with management, for management to execute

 

 

 

 

For more information about our processes, visit our website

Clues About Competitor Intentions to Contract, Divest, or Decrease Capacity

A competitor's decision to divest a business unit, decrease production capacity or simply to cut a product area, channel, customer segment, or geographic region could have a major impact on your business.  It makes sense to be aware of the signs that your competitor is implementing such a plan.

Some of the clues will be apparent from casual observation; others require some form of active competitive intelligence research.  First, the more obvious indicators, which may be revealed through secondary literature searches, salesperson conversations with customers and prospects, and even the company's own announcements:

• Operational changes on the production floor.  Outward signs may include the hiring of a consulting firm, laying off of employees, or sale of equipment.
• Layoffs.  Beyond the production employees, there may be a cross-section of employees who are let go.  Be alert for increased volumes of unsolicited resumes hitting your hiring officers' desks.
• Reduced commitments with suppliers.  Casual conversations with suppliers may reveal a planned major reduction in purchase volumes from one of their other customers (a competitor of yours).
• Abandoned customers.  Salespeople may report increased call-ins from customers, who may suddenly be feeling abandoned.

There are also some less obvious clues that a competitor has waning interest in a business unit, product line, or segment.  In-depth research may be required to gather the insights needed to confirm or refute these indicators:

• Shifting corporate strategy and intent.  Conversations with various levels and departments within the organization can reveal the corporation's key strategic tenets.  A sudden change in strategy is a clue that they are placing less emphasis on a particular aspect of their business.
• R&D focus changing.  Professional researchers can develop conversations with R&D personnel to learn about their focal areas.  A change in focus may be an indicator of a strategic shift.
• Brand changes.  Announcements that a Company is hiring an ad agency or brand strategy consulting firm may warrant more in-depth conversations with marketing and branding personnel to learn if a particular product, business unit, or segment is being cut in some way.
• Acquisition intent.  Professional researchers can inquire to the board level about the parent company's commitment to the business.  By asking if the board would consider a sale of the business, or by asking about their interest in pursuing their own acquisition, researchers may learn the rationale behind a positive or negative response to the acquisition question.

• Cancellations of permitting requests.  For some business units or products, ongoing public permits are required to purchase or transport hazardous materials.  Or they may have intended to extend a rail line, add a major water line, electrical capacity, etc.  If the permits for these projects are suddenly cancelled, the Company may have decided to cancel a major project.

While some of the above indicators are obvious, others require some real sleuthing on the part of professional research firms.  Acclaro Growth Partners has experience in conducting competitive research and analysis.  We understand the motivations behind specific tactical actions that can be revealed.  For more information, visit our website.

Issues to Consider When Conducting Competitive Intelligence for the Sales Department

Market research, customer analysis, and competitive intelligence take different forms depending on the overriding issue that needs to be addressed, answered, or decided upon.  And the identity of the client greatly influences the core issue.  In other words, the varying responsibilities of marketing, operations, finance, and sales means widely varying competitive intelligence assignments for each departmental entity.  This blog post will focus on the needs of the sales department.

 

Purpose.  The sales department often uses CI to determine specifically how to win against specific competitors in competitive bidding situations.  They want to understand competitors’ strengths and weaknesses, as well as customer opportunities.

 

Customer knowledge

·         What are the customers’ perceptions of competitors’ strengths and weaknesses?

·         Why did customers choose a particular supplier?

·         What are the criteria they use in selecting a vendor.  How much weight do they place on each factor?

·         What are their unmet needs?

·         What is each major customer’s level of interest in switching or adding suppliers?

 

Competitor knowledge  

·         Who are the top customers of each competitor organization?

·         What are competitors’ perceptions of their own and their competitors’ strengths and weaknesses?

·         Where do competitors believe their greatest opportunities lie (product, geography, customer segment, etc.)?

·         What is the competitor’s growth goal?

·         What is the strategy it will use to achieve this goal?

·         What is the product strategy, pricing strategy, distribution strategy, and promotions strategy of each competitor?

·         What is the value proposition to customers?

·         Estimate revenue and gross profit in each of the major business units or functional areas that are relevant.

·         Describe the sales organization, to include territory definitions, level of experience and reporting structure.

·         How do each of the competitors perceive the breakdown of market shares, and how are market shares changing?

·         What are the core competencies that drive each player’s actions?

·         What are the best areas to compete against each competitor, given your internal competencies.

Use the above list of questions as a starting point in developing your own customized list of issues that should be addressed.  Answering these questions will help your sales department improve its winning percentage against competitors.