For the past 20 years you have built your information technology business. Your company has become part of your identity. Even when you are not at work, you are working, thinking, planning. You never stop. If you sell you are leaving behind much more than a job. In this article we will discuss some reasons that might indicate that it is time to sell your information technology company.
1. Late in your working life you are faced with a major system re-write, sales force expansion or capital requirement in order for your company to maintain its competitive position.
2. A large competitor is taking market share away from you at an accelerating pace.
3. Your legacy system or competitive advantage has been “leap frogged” by a smaller, nimble, entrepreneurial firm.
4. A major company just acquired a direct competitor and will be aggressively growing the business.
5. Your fire to compete at your top level is not burning as brightly as it once did.
6. Your kids are not interested or are not capable of running the business.
7. You have had a health scare and have decided to smell the flowers.
8. You have lost a major client of a key employee.
9. The market is hot and you decide to take some chips off the table for asset diversification.
10. You exit in an orderly fashion and from a position of strength as you intended.
Lets look at these in a little more detail.
Major capital investment, system upgrade or sales force expansion required – You are supposed to be diversifying your assets, not concentrating them even further. Think about a simple payback analysis. Does that extend beyond your retirement date? You want to be able to defend that investment with the energy and intensity you devoted when you were originally growing your business. Maybe it is time to bring in an equity partner with smart money, an industry buyer with the management depth, infrastructure, or distribution network to protect that investment. You might consider selling now with a three-year employment contract. Let the new owner fund the required capital investment and defend that investment with his larger capital base.
A Large Competitor is Taking Market Share Away from You – Believe me, the news is not going to get better. As an investor you would probably sell the stock in a company you owned if Microsoft or GE decided to assume a presence in that market. Business owners often struggle with objectivity when a similar event takes place in their own company’s industry.
Your Legacy Systems have been “Leap Frogged” by a Nimble Entrepreneurial Firm – This happens all the time and can cause an erosion of your customer base. Your inertia will sustain you for a while, but eventually you will begin to experience customer defections. You can either rewrite, acquire or sell. If you decide to sell, do so before losing too many clients.
A giant company in your industry just acquired one of your major competitors. Watch out, they did not make this acquisition to maintain status quo. They want to grow their market share. They will be coming after your clients. The good news is that as a defensive measure, one or more of their competitors will be compelled to make a similar acquisition. It is best to be aggressively ahead of the curve and get acquired while the market is hot and prices are being bid upwards.
Your interest and competitive fire is eroding. Let’s face it, if you are not growing, you most likely are contracting. Your competition was tough when you were on your game. Your family’s net worth is under attack if you are no longer fully committed.
Your original plan was to turn your business over to your children. They may not be interested or capable of competing at this level. Perhaps the greatest legacy you can leave to your kids is to convert your company into a diversified portfolio of financial assets that are far less risky than turning complex company in a highly competitive industry over to inexperienced managers.
You have a health scare and all of a sudden you start thinking of all the sacrifices you made and all the things you want to do before it is too late. Your list of goals is immediately changed from financial in nature to family, friends, travel, experiences, philanthropy, etc. You might want to listen to your heart this time.
You have lost a major client or a key employee. That can be a real blow to a business. The owner, by nature, is optimistic and believes that the lost business will soon be replaced and does not ratchet down the expense level to match this new sales level. If he does cut, inevitably, it is not fast enough and not deep enough. Maybe it is time to seek a buyer that could replace that business before your company’s value is severely impaired as your profits erode.
The market is hot and you decide to take some chips off the table for diversification. You may be thinking of retiring in four years, but a consolidation is occurring in your industry and valuations are up 20%. Sell at the top and sign a four-year employment or consulting contract. The odds are that if you exit on your original schedule, valuations will have settled back down to the norm.
You ring the bell and exit on your own terms, from a position of strength, exactly like you planned. You are well aware of the competitive forces in the market and the relative strength or weakness in valuation multiples. You have prepared your business to be attractive to a strategic buyer. Everything is going your way. You hire a good M&A advisory firm to present you confidentially to the most likely buyers. Several recognize your value and show interest. You are able to get a little competitive bidding going. Your transaction value rises and your terms improve. You pull the trigger and complete the sale. Mission Accomplished.
By: Dave Kauppi
Archive for January, 2010
Ten Reasons to Sell Your Information Technology Company
January 28th, 2010Information Technology in Hospitality Industry
January 26th, 2010Traditionally, hotels were largely dependent on cards and paperwork at the front desk to keep in touch with old and current customers. They were largely at the mercy of the desires of vacationers to arrive, and on their own efforts and staff to be ready for potential surges or long droughts of occupancy. Luckily, such inconvenience and old-fashioned methods are long since past, thanks to advances in information technology.
The first area in which information technology became important was in regards to billing. Old-fashioned paper-based book-keeping was time consuming and inefficient, and was not able to quickly tell a hotel owner what the situation of their hotel was. Luckily, advances in modern record keeping allow for a hotel owner to keep track of what they have on hand, how much of it they have, and how much it costs. Accounting is complicated, but advanced accounting software, especially that tailored to the unique needs of the hospitality industry, helps to enable hotel owners to make smart decisions. Services and products that are no longer used can be quickly cut off to save money, while those who show demand can be increased in quantity or modified so as to reduce the heavy usage.
Most hotels are familiar with booking rooms and reservations over the phone, but information technology has expanded well beyond that. Hotels can now work with various online travel companies and booking services to have their rooms booked online, with no need to employ expensive staff. This also allows a hotel to advertise their open rooms and special deals directly to persons who would be most likely to purchase them, instead of wasting lots of money advertising in an unfocused manner. High quality information technology thus allows for better arrangement and management of bookings in order to allow a hotel to better maximize occupancy, and to know in advance when large groups or lean times are approaching. This allows a hotel manager to make plans regarding temporary staff, good times to renovate or expand, or other concerns, because he/she can determine the state of their hotel currently and for the next few months with only a few clicks on the computer.
The advances in information technology extend well beyond booking, however. The internet is essential for vacationers who wish to contact those back home, and for those traveling on business to get in touch with the office. Therefore, wireless internet has become a very common and very useful service for hotels to provide. Many business minded persons even require that a hotel offer internet services so that they can keep working while on the road. Luckily, such services are easy to provide, as all that is required is a wireless router and various devices to ensure the entire hotel is filled with the network. Modern advances in wireless internet also allow for the wireless internet provided for hotel visitors to be used to network the hotel itself. Security cameras, door locks, and other devices essential to hotel security and safety can be wired into the network, so that staff are alerted whenever a door is propped open, a fire alarm goes off or suspicious activity occurs. Though the hotel guests are wholly unaware of it, this sort of added safety and security keeps them safe, and in the event of a problem they will most certainly appreciate the benefits of such a system.
As advanced as it is, information technology in the hospitality industry is still going forward. Intelligent booking systems enable rapid and efficient guest feedback, along with the ability to predict who is likely to use the hotel again and inform them via e-mail or text messages when good deals arrive. Hotels with room service or other guest services can offer their menus online, allowing for quick updates, high-quality photos, and other ways to allow guests to see and order services before they even arrive. There are also advances in terms of payroll and inventory which make information technology a valuable asset for saving money and maximizing profits. The unique nature of the hospitality industry makes it a great place for new and emerging information technology, and forward-thinking hotel owners and managers are always looking for smart equipment and software to invest in.
By: Nick Nikolis
The New Information Technology Marketplace
January 26th, 2010This article is also available as a Podcast on “The RootCause” podcast series available on iTunes.
As our country begins what I can only hope is a new era, I find myself wondering about the future of our industry. Information Technology took a very hard hit in the Dot Bomb Crash of 2000. I was under contract to Lucent Technologies at the time and the impact there was enormous. Jobs were lost by the thousands, and so were retirements. Now, in 2008 and 2009, we see another financial bomb–but we also see a new vision.
In 2000, the world discovered that just being on the Internet did not guarantee success. Prior to that, business was doing well at moving money around, if not actually producing much. The cash had to keep moving or it would settle to the ground and people would notice that there wasn’t that much new money–just the same funds moving in circles–redistributing. Maybe that is what finally happened. Maybe the music stopped and everyone realized that there weren’t enough chairs for everyone–and panicked.
The financial bomb this time is a bit different and as I am not a financial consultant, I will not try to explain it–even if I fully understood it-which I do not. My concern here is the impact of this market on my industry, the Information Technology Industry. This time it seems, we are not dead center on the bull’s eye–instead we are the arrow point. We went through our decimation and many of us retired, retrained in other fields or just gave up. Others stayed on and have continued to grow with the technology. It’s leaner and meaner and there are far fewer of us to do what needs doing. But, it is also the foundation of the new economy to come.
New energy systems and a rewrite of the way that the Health Care Industry does business will be heavily steeped in Information Technology. Our skills are going to be in more and more in demand as companies around the world, and here in the United States, scramble for ways to create a sustainable future for our planet and our respective countries. We will be right in the middle of it. Are you ready for that? Are you really?
One side effect of the trimming down of our industry has been reluctance to invest in upgrades, to improve efficiency of systems and, most importantly, to create. Older equipment and technology are often still in place–in mission critical positions. Products at the end of their support cycles, that are still working, are still in place. After all, why fix what isn’t broken? Money is tight.
Here is why you should fix it while it is still working.
(1) Because it IS still working. Once a component fails, you will end up scrambling to replace it–making bad decisions and building sloppy installations.
(2) Because new software tools, operating system manufacturers, (think patches), and other manufacturers of equipment, do not perform regression testing back to the beginning of time. If your operation system or other software tools are past that magical line in the sand, new-supposedly helpful-patches and upgrades could break your systems in unforeseeable and unsupportable ways.
(3) Because it is not about keeping your position in a company or in a market. It is about creating new technologies, processes and markets. The old ways don’t cut it anymore and whoever creates a solution to a problem, regardless of country or marketplace, will drive the economies of the world–and of their niche in the global marketplace. If your company creates products or provides services, you need to be on the crest of the wave.
President Obama has asked us to be willing to make hard decisions and to work to create the new technologies that will drive the world’s economy. I for one, embrace the call. Let’s stop trying to make our money by moving money from one pocket to another and begin once again to create. You, the people of the Information Technology Industry, are going to be right at the heart of it. Technologists, look for companies that want to be there too. Information Technology Managers, look for people with passion. Let the wonder that first led you to master an aspect of the magic of technology once again inspire you. This is our moment. This is our challenge. It’s time once again to have some fun with this stuff!
By: Barry Koplowitz
