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Should you stay small or go big in this economy?2009 Inc. 500 Conference in Washington, D.C.
Doug TatumChairman Emeritus Tatum LLC
Chairman 4M Navigator LLC
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Tatum LLC
1,400 Executive Partners and Professional StaffMore than 30 Offices throughout the NationServing:Entrepreneurial growth firmsPrivate equity firmsSmall public companiesLarge multi-national public companies
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4M NAVIGATORTM provides Clarity to Act Quickly
•Are we driving value in the business? Are we getting a good return on our investments in people and other assets?
•Where is the management team misaligned?•What are the most vital issues that we need to focus on?•How do our financials compare to peers?
4M Navigator Helps you answer:
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Gazelles- The Navigating the Growth ProcessThe Economy & No Mans Land
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Net Changes Mask Establishment Births and Deaths
11/2/2007
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Mid-Size Establishments Account for Most Jobs in 2006 NETS Database
11/2/2007
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Meeting the Growth ChallengeA Map through No Man’s Land - The Four Ms
Realign with your Market
Hire your Senior Management
Understand your Model
Raise your Money
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The Market Transition
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Meeting the Growth ChallengeA Map through No Man’s Land: Market Mis-alignment
EARLY STAGE/SIMPLE
RAPID GROWTH/SIMPLE?
EARLY STAGE/SIMPLE
CompanySimplicity
Customer
Company
Complexity
Multiple Customers
Market Mis-alignment is the natural progression ofEntrepreneurial Control
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Meeting the Growth ChallengeA Map through No Man’s Land: The Market Navigation Rule
The business as a whole must become good at doing what the Entrepreneur did well
with customers in order to successfully re-create Market Alignment
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4M Navigator X-RayTM Market
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The Management Transition
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Meeting the Growth ChallengeA Map through No Man’s Land: Management Navigation Rule
The founder must hire at the top first, not the middle, to successfully navigate
through No Man’s Land
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4M Navigator X-RayTM Management
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Attracting Management You Can’t Afford
France 2000 United States 2000 United States Now
Yes: Valuation Requirements No: valuation requirements Yes: Valuation Requirements
Yes: special Accounting treatment No: special accounting treatment Yes: special Accounting treatment
No: “qualified options” are not taxable to the individual upon exercise.
No: “qualified options” are not taxable to Individual upon exercise
Yes: “qualified options” could be taxable to an individual
upon exercise.
Yes: the company is directly taxed on the employee’s gain upon exercise of
“ non- qualified options”
No: the company is not directly taxed on the employees’ gain upon exercise of ‘non-qualified
options’.
No: the company is not directly taxed on the employees’ gain upon exercise of
‘non-qualified options’.
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The Transition in the Economic Model
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Meeting the Growth ChallengeA Map through No Man’s Land: The Model
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4SCORETM
•Are we driving value in the business?•Are we managing the business as an investment?•Are we getting a good return on our investments in people and other assets?
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The Case of the Freight Forwarding Industry
0%
1.0%
2.0%
3.0%
4.0%
$<50
0k
$500
k-1mil
$1mil-$
5mill
$5-10
mil
$10m
il-20m
il
$20m
il-50m
il
$50m
il-100
mil
$100
mil plus
Pre-tax Profit % by Five Year Average Firm Size
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Meeting the Growth ChallengeA Map through No Man’s Land: Model Navigation Rule
The business’s value proposition must be scalable (profitable at a higher
volume) to successfully navigate No Man’s Land
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Financials
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Financials (cont.)
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The Money
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Microeconomics of Growth
The following illustrations were
built from an economic model that
accounts for the typical asset growth characteristics of a rapidly expanding
business on accrual accounting and
transitioning through “No Man’s Land.”
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Illustration of “Capital Funding Gap”
Capital Funding Sources & Risks For Small & Emerging BusinessCapital Funding Level Business Category Capital Sources Business Risks
BUSINESSES IN
“CAPITAL NO MAN’S LAND”
-Limited Cash Flow-
(“Too big to be small; too small to be big”)
Start-up and Other Small Businesses
Emerging
Growth
Businesses
$1 million
$250,000
0
Investment Bankers(IPO Market/Private Placements)
Commercial Bankers
Private Equity Groups
Venture Capitalists
SBICs/SBA Loans
Very Limited Access to Capital(Angels/Factors)
High Cost of Account & Collateral Management
Business Borrowing Exceeds Personal Assets
Investment by Family & Friends
Loans Based on Personal Assets: Banks/Home Equity/Credit Cards/SBICs/SBA
LowerRisk
HigherRisk
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Meeting the Growth ChallengeA Map through No Man’s Land: The Money
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Meeting the Growth ChallengeA Map through No Man’s Land: Money Navigation Rule
The key to raising money is reducing real and perceived risk of the company
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4M Navigator X-RayTM Money
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General Thoughts and Conclusions
Think Strategically
Act Immediately