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Following our masked leader's call to action on Youth Day ("Young people must rise to the challenge of leading our recovery after the coronavirus" – Cyril Ramaphosa), it's worth pointing out one of the biggest advantages our young democracy has over many other countries: how youthful we are!
An ageing population is worrying when it comes to economic growth because older people generally 'do' less of the lifestyle stuff that can fire up an economy like eating, drinking, buying clothes and being a bit 'whoo-hoo' with their cash. Which is why age demography is considered a primary trend to watch when predicting who's going to grow and who's going to 'slow' in the near future.
Where do we stand? Well, let's define 'youth' as the 18-35 year old cohort and start with the USA where 23% of the population falls into this broad 'millennial' age group. It's one of the reasons for their economy being so robust. But over in Europe, that falls to 20% and when you look at countries like Spain, Italy and Japan, it falls down to near 17%. In China it's 25%. Which, hilariously, means that there are more millennials in China than the entire population of the USA!
And here in South Africa, according to the 2019 Mid-Year Population estimates, the youth represent 27% of our population. And that, friends, is a LOT more youthful energy, skill and passion than most other countries have, ready and waiting to dent the universe. All they need is a government that acts in the best interests of its people and in a way that encourages the rest of the world to want to do business with us.
So, er… back to you, Mr President!


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On January 30, 2020, Maryland joined the ranks of the growing number of states with "ban the box" laws restricting pre-employment inquiries into an applicant's criminal record. Although the governor vetoed the bill on May 24, 2019, the General Assembly voted to override the veto on January 30, 2020. As such, Maryland's ban the box law (SB 839) will take effect on February 29, 2020.
Because the requirements of the new law conflict with many employers' traditional hiring practices, a careful review of the law's requirements is warranted. The law applies to employers with 15 or more full time employees and applies to applicants seeking employment in any position for pay as well as applicants seeking positions in vocational and educational programs with or without pay. In addition, the law specifically covers applicants for contractual, temporary, seasonal, and contingent positions as well as applicants seeking work through a temporary or employment agency.
Subject to the exceptions discussed below, the law prohibits employers from requiring the disclosure of an applicant's criminal record information prior to the applicant's first in-person interview. The prohibition on requiring the disclosure of an applicant's criminal record information is broad and encompasses information related to both prior criminal convictions and criminal accusations, i.e. arrests which did not result in a criminal conviction. However, the restrictions imposed by the law, do not prohibit an employer from requiring the disclosure of an applicant's criminal record at the first in-person interview.
The law also provides certain exceptions to the restriction on pre-interview inquiries into an applicant's criminal record. Specifically, the restriction does not apply if another federal or state law either authorizes or dictates a pre-interview inquiry into an applicant's criminal record or if the employer is engaged in providing programs, services, or direct care to either minors or vulnerable adults.
Employers failing to comply with the requirements of the law may find themselves subjected to costly and time consuming investigations, administrative orders compelling compliance, and fines of up to $300 per applicant. It should further be noted, that SB 839 does not preempt local jurisdictions from enacting or enforcing local laws which are more restrictive with respect to employers' screening of an applicant's criminal record. Jurisdictions including Baltimore City, Montgomery County, and Prince George's County have adopted their own ban the box provisions and for this reason employers hiring in those jurisdictions should review the requirements of local laws which in many cases impose additional restrictions on obtaining and relying upon an applicant's criminal record information.
Mr. Burkhouse is a Member with PK Law and is part of the firm's Education, Labor and Employment Group. As part of Mr. Burkhouse's employment law practice he counsels and represents employers regarding employment discrimination claims arising under Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967. Mr. Burkhouse also advises employers with regard to non-compete agreements, restrictive covenants, arbitration agreements, trade secrets, confidentiality agreements, and employee hiring and termination procedures. Mr. Burkhouse can be reached at (410) 740-3150 or email@example.com.

subset: commoncrawl


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If you're scared you'll end up pursuing a completely unsatisfactory and life-draining career, don't worry. Millennials are already changing the business landscape in search of more meaningful jobs at companies that nurture great values.
There are many preconceptions about choosing the right career, but one thing is certain — you can't go wrong if you follow your gut.
Money is great, but ask any stressed-out, high-earning adult if they're happy, and the answer will probably be negative.
So how do you start building a meaningful career?
A High-Paying Job Is Not Necessarily a Good Job
As the title of this article stipulates, it's not all about money. Many young adults fall into the trap of opting for a higher-paid job that is ten times more stressful than the other option. Choosing a job based solely on the salary is a recipe for disaster.
Of course, if you're able to find an opening for a position you really like and the compensation package is great, that is no reason not to take it. However, money should be only one factor to consider while looking for a job.
Don't be afraid to start in a position that has a lower salary if it can help you work toward your goals and desires.
Think About What 'Meaningful' Means to You
While for some, having a meaningful career means doing something they're good at, for others, it's about helping the community or having a long-term mission. In other words, "meaningful" means many different things to different people.
Think long and hard about what this means to you. What would you like in a job? Would you like to bring your skills to perfection, let your creativity run free, lead a team of people, build a legacy?
Of course, you may not even know what you want right now, and that's okay. In time, you'll experiment and see what you like and dislike.
Don't Let Fear Drive You
If you want a career you'll enjoy deeply and whole-heartedly, you mustn't let fear get in the way. Starting out is hard, and in the beginning, it may seem like your goals and desires are unattainable.
People who stumble on this first step tend to stay at a job they hate just because they're afraid of pursuing their dreams. So it's perfectly okay to switch jobs frequently, especially in the beginning. Why would you settle for something that doesn't suit you?
What's more, with different jobs, you gain invaluable experience that you can later use to your advantage. You may decide to start your own online business, for example, and thanks to your colorful experience, you'll be able to compare different practices and choose the ones that work for you.
As many as 74% of younger employees would accept a pay cut in exchange for their ideal job. This number shows it's much more important to do what you like than earn a lot of money.
Surround Yourself With Supportive People
A surefire way to get into the wrong career is to listen to everything people tell you about yourself. Your family's and friend's own fears and limitations, as well as their concern for you, may lead them to discourage you from pursuing your passion.
This is something creative types often experience — art is not lucrative, so why not choose something more profitable, such as economics? The answer is simple: because it wouldn't be meaningful work for you.
So try to surround yourself with supportive people who will believe in you and cheer you on. Moreover, show your family how serious you are in pursuing your dream career. They may not even be aware of the many job opportunities in your area of interest.
Don't Overthink It
In the words of Nike — just do it! You're not sure if you should take that job? Do it. Should you apply for that course you're interested in? Absolutely. Should you listen to your intuition? Always!
The point is, you'll never know how anything will turn out unless you try it. Even if you're not 100% sure you'll love a job, go for it and see what happens.
On the other hand, you may be absolutely convinced that you'll love a job and end up completely disappointed by the end of your first week.
What we're trying to say is that you can't think your way through to your ideal job. You need to be active and seize your opportunities. Even when you're stuck and don't know which path to take, the best way to unblock yourself is to take action. By being active, you unlock opportunities you might not have been aware of before.
Don't Give Up When It's Tough
Ultimately, you need to build resilience. No matter which path you choose, you'll have ups and downs. This is especially true when you're trying to build a meaningful career on your own terms. The important thing is not to give up.


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Starved Rock Lodge is now using a new, all natural botanical disinfectant solution. This product kills 99.9% of bacteria, viruses, fungi and molds. In an on-going effort to fight COVID-19, the housekeeping staff is spraying commonly used, high-touch areas within the Lodge on a daily basis. The spray has a lemongrass and grapefruit scent so it is not offensive to guests. Housekeeping Director, Chrissy Thomas said, "We are doing all we can to make Starved Rock Lodge safe and clean for every guest." Comforters, pillow shams and high-touch items were removed the Lodge's rooms and cabins last March. Supplies such as coffee, LaSalle County Visitor Guides and trail maps are available at the Front Desk at no charge to guests.
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The Diner Scene from Mulholland Drive
I haven't written in a long time, mostly because nothing interesting happened. Then I watched something scary, and I wrote this! Best way to break out of boredom: watch something scary. But then you may be afraid of your own peripheral vision afterward so maybe don't.
Spoilers to Mulholland Drive diner scene up ahead! And spoilers to earlier episodes of Twin Peaks as well. This is written for people who have already seen Twin Peaks, Mulholland Drive, or just The Diner Scene. I highly recommend watching David Lynch's work instead of listening to me talk about it. But if you don't want to be spoiled and still insist on reading, I've labelled the parts that contain spoilers.
Years ago, one of my art teachers recommended me to watch some of David Lynch's movies. "There is an organic quality to your line work. I think his movies will help you with storytelling." He often spoke in vagueries and had a thick British accent that was hard to decipher.
I did not take up on this recommendation immediately, because I remember not being able to finish Twin Peaks as a teenager.
The episodes were burned onto a CD-ROM, and they were given to me by the guy I liked at the time. He listened to Wu-Tang Clan and wore T-shirts with sand dunes printed on them. I listened to Anime music and wore windbreakers. I had never seen anything like Twin Peaks before. I was fascinated. After watching the beautiful opening scene, I was delighted to find that one of the main characters was played by Joan Chen - an Asian actress! I immediately became interested.
However, a few episodes in, I realized this show was not what I had in mind at all. It was weird and unsettling. And I didn't know what was going on. Then came a scene where agent Cooper was inside a dream with a small, slightly deformed man. I'm not sure what exactly was so upsetting, but everything about it made me want to run away. I did not handle scary things with grace. I bolted toward the eject button and hit it frantically. The disk was put away to never be touched again. But in order to convince my crush that I was cool, I proceeded to read about what happened to Laura Palmer on the internet. This relationship never went anywhere.
But the words of the British art teacher lingered in my head. A part of me thought if there's a chance that watching David Lynch would "help me with storytelling", maybe I should look into it. Maybe I'd grown up since my teenage years and am no longer a chicken.
Out of all David Lynch movies, I thought "Mulholland Drive" sounded the most harmless. Something about the word "Mulholland" reminded me of berries. And the word "drive" is just inherently relaxing unless you're in a traffic jam. So I typed it into YouTube and clicked on the top scene, the one titled "Winkie's Diner".
Soon into the scene, I remembered exactly why I couldn't finish Twin Peaks. David Lynch has this ability to trick you into thinking that something definitely won't be scary, but it absolutely will be. It's as if he's saying "It's an innocent diner in broad daylight... how could this be scary?" And then the next thing you know you're watching it and clutching your pillows with a death-grip. Yes, it was inside a diner and it was broad day light. But it was also a David Lynch movie.
I glanced over at the YouTube recommendations on the left. There was a video titled "David Lynch - How To Do a Jump-scare", with a dirty-ish brown-ish blurry-ish person in the preview. A warning went off in my head: "This is not a romantic comedy." But a part of me also thought "That brown thing is probably the most scary thing about it. How bad can this be". I was wrong. I was VERY WRONG. This scene turned out to be the MOST scary two and a half minutes. For the sake of this story, I will describe it briefly. But I definitely recommend watching it. It's on YouTube and very easy to find.
------------------- Here Comes the Spoilers------------------------
The young man tells his older friend about a dream he keeps having. We can see clearly his thick eye brows and visible forehead veins. He says his nightmare involves the exact friend who he is having breakfast with, taking place at this exact location. He says there was a man behind the wall. He's sweating more and more as he talks. His friend gets up, pays for food, and they get prepared to go outside. The camera reveals that the young man hasn't touched his bacon and eggs at all. And then they were outside the restaurant, near the trashcan, slowly stepping forward to see what's behind it. Then the jump-scare came. I was not at all prepared. There were sound effects, there were ambiguous mud-coloured person on the screen, there were light-green eyes. It caught me so completely off-guard that I screamed out loud.
I thought I was going to have a heart-attack. But the scene was over in less than a second. The young man falls down dead. This gave me a weird sense of accomplishment: "Ha! At least I'm more brave than that guy! What kind of scaredy-cat dies from seeing a hobo behind a trashcan?"
Pumped full of adrenaline, I decided to test my own bravery (and heart functioning), and went back to play the video again. I thought I'd be safe now. I was wrong. The scene was predictable now, yes. But that somehow does not make it any less scary. There were the eye brows, the popping veins, the sweating, the telling of the dream, the uneaten breakfast and walking toward the trashcan. And then, Whoosh! Out of nowhere, a brown blurry monstrosity takes up all your senses. It was equally terrifying as the first time, if not more so, because I'd put my face closer to the computer. Which was not the smartest choice. But upon surviving this a second time, I've now gained a false sense of invincibility: "Ha! I am conquering my fears!"
Unwittingly, I went back to watch the video for a third time. I put it on fast-forward and sat back from the screen. It can't possibly be scary now, can it? But I was wrong again. Eyebrows, veins, dream, not eating breakfast, walk toward the trashcan, and.......BAM! Brown-colored hobo gobbles up the screen. My heart almost jumps out of my mouth. After that, I was not crazy enough to scare myself for a fourth time.
-----------------------End of Spoilers-----------------------------
If you enjoy feeling like you're on the verge of a heart-attack, you'll probably have fun watching Mulholland Drive. I am 99% sure I will not be watching this movie from start to finish because I don't want to die. But there's a 1% chance that I probably will watch it. If I don't write again, take care!
Nope actually I am not that brave I really really really don't think I'll be watching it. See you soon! And um, if you are my art-teacher somehow reading this, I hope you are happy.
Note: I just want to say that if you don't want to watch a scary movie, you absolutely do not have to. Although it would be nice if you did, nobody can call you a chicken because you didn't finish a David Lynch movie.


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Dr Nguyễn Thị Thanh Nhàn (left) receives World's Best Smart National Concept and Model award at the Global Smart Cities Contest 2018 earlier this month in London. -- VNS File Photo |
HÀ NỘI – After working the fields of science and technology for more than two decades, award-winning Dr Nguyễn Thị Thanh Nhàn knows only too well the so-called smart city system is nothing new.
The model has already been tried and tested in many countries. But the secret is getting it right in the surroundings where it will be created. Then watching it evolve, mature and grow into the best smart city that fills the needs of the community it serves.
After attending many conferences and workshop on smart cities or smart nations, Nhàn realised that most of the models cannot clarify how they benefit different groups of people in the society, or even when they can, they cannot do it thoroughly. There has been almost no instruction on the implementation in details as well.
"In Việt Nam, there are some places where smart management models of traffic, health care and education are applied, but there has been no synchronous and integrated system," Nhàn said.
"That's why I built a smart national model based on the specifics of supporting features for different beneficiaries, and analysed the solutions to be implemented to realise the model of smart nation."
After lots of tossing and turning at night as well as serious research and development, Nhàn came up with what she hopes will answer all the questions raised.
"Covering the connectivity model is the wide range of smart utility and applications based on big data, real-time information, artificial intelligence, predictive analytics.
"These all form an integrated management centre at all levels, realising the multi-dimensional interaction model and benefits to more than 20 groups."
Explaining her concept, Nhàn said these groups include leaders, managers, professional agencies, researchers, doctors, patients, teachers, students and visitors.
In fact, she said, just about people from all walks of life.
"The world has already applied the smart national model for a while, our job is to learn experience and put into practical application," she said.
According to Nhàn, her system has many different parts based on the experience of programmes that have been successfully applied in many countries around the world including Israel, some European countries, South Korea and Singapore.
"I even studied failed models to make sure I didn't make the same mistakes," she said.
Nhàn's model eventually built a smart nation where people would be able to directly use all public services, free training programmes and special policies that give priorities to the people.
People's issues and specific recommendations to the Government can be resolved without wasting time waiting for cumbersome procedures.
Students in every corner of the country will benefit from enrollment in kindergarten to university programmes, or instead of exam preparation classes, they can take classes online with the best teachers, be able to find sample lessons, practise exam questions.
And if that's not enough, the system can even self score and self assess. Doctors and patients will have a similar diagnostic in place, linking them to experts across the globe.
Nhàn said AIC has made the step-by-step schedules for different phases.
"It's impossible to say a big, ambitious plan can be implemented in a short period of time.
"But we are striving so that in 2019 some basic utilities will be deployed in some specific areas," Nhàn said.
"Implementing the smart country model will create a breakthrough for Việt Nam in the future, and especially for those in society who benefit from what I would like to do."
Nhàn's hard work has been paid off as the model has won the World's Best Smart National Concept and Model award at the Global Smart Cities Contest 2018 in London earlier this month.
According to the World's Smart Cities Organisation, the Institute of Control Sciences of the Russian Academy of Sciences and the Normandy French Tech association, who judged the contest, Nhàn's model stood out from other 300 entries because of its comprehensive system that connects central agencies, ministries and cities with grassroots establishments like schools, hospitals and businesses.
European smart-city expert Sarolta Besenyei, head of the jury board, said that they were impressed with AIC's project because it suggested not only a concept and model but also solutions to build smart nations.
She explained that the model could bring the specific beneficiaries from the smart ideas, not only to help leaders, businesses, foreign investors, civil servants and also aim to serve the people, some industries such as researchers, journalists, doctors, teachers, students, lawyers, or judges.
Martin Yates, Chief technology officer of DELL EMC's South Asia and Emerging Markets, said he was pleased to see amazing information and innovations flowing from Nhàn's AIC that "can transform Việt Nam."
He also committed to providing the needed technology and support to enable the joint success between his company and AIC. -- VNS


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Steve W. Klemash is Americas Leader; Jamie C. Smith is Associate Director; and Rani Doyle is Executive Director, all at the EY Center for Board Matters. This post is based on their EY memorandum. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law by Leo E. Strine (discussed on the Forum here); and The Uneasy Case for Favoring Long-Term Shareholders by Jesse Fried (discussed on the Forum here).
Boards can strengthen their oversight role by guiding management to focus on the long-term, understand stakeholder objectives and communicate the many ways their companies create value.
Transformation of business, society and governments has accelerated over the last decade. Disruption, especially in business, is an increasing challenge for governments, society and companies to navigate and manage. In this environment, a growing and increasingly diverse group of market participants is supporting greater corporate focus on creating long-term value for multiple stakeholders.
As companies consider why and how to address such considerations, a consensus is emerging about how companies can redefine and communicate corporate value through an expanded lens. There is an ongoing shift from the view that the primary purpose of companies is to enhance and protect value for shareholders (shareholder capitalism) to the view that corporations are better able to deliver long-term value to shareholders when they understand and address the needs of their customers, employees, investors, regulators and other key stakeholders (stakeholder capitalism).
As boards examine these changing dynamics and expectations, they should consider recent market-driven approaches and regulatory views on measuring and communicating corporate value with an expanded and longer-term perspective.
The board's role in the shift from shareholder to stakeholder capitalism
A board's primary responsibilities are to provide oversight, insight and foresight. Being well-informed is foundational to a board's ability to effectively execute those primary responsibilities. For this reason, boards have an obligation to seek a clearer understanding of stakeholder capitalism and its underlying rationales. Through this understanding, boards may see opportunities for their companies to deliver improved value over the long term by considering and addressing key stakeholder needs and demands.
To facilitate more informed and "patient" investment, many investors are asking companies to report on how they identify and measure both their intangible assets and the environmental, social and governance (ESG or sustainability) initiatives that are influencing long- term corporate value. They and other stakeholders are also seeking disclosure about whether and how those measurements are used to inform and improve strategic planning, risk management, executive compensation, sustainable operations, growth and, ultimately, long-term corporate value.
To more fully respond to these points of view, boards should consider how their company's value is reflected in intangible assets such as culture, human capital, innovation, corporate governance and ESG initiatives. Some have concerns that corporate balance sheets may not fully reflect the value of these and other intangibles, which can represent over 50% of an entity's market capitalization. [1]
Boards can encourage their companies to develop better ways to identify, measure and communicate corporate value, including through narrative disclosures and nonfinancial metrics, and consider how a longer-term focus can lead to investment and innovation that promotes growth and value creation.
Here we highlight five market-driven and regulatory initiatives on long-term value that illustrate the shift to the longer-term, broader perspective of value suggested in stakeholder capitalism. Boards may consider how any of these initiatives might be useful for their companies to apply in ways that could clarify and support value creation.
Refocusing on the long-term
Companies and investors should set their sights further than short-term gains.
To achieve long-term value, both companies and investors have expressed a need to look beyond the bottom line in quarterly financial reports. A narrow focus on short-term financial results has been reported as discouraging public companies from investment in research, innovation, technology and hiring, and private companies from going public. Companies, asset managers and investors are responding to this concern.
FCLTGlobal, a private organization whose membership includes companies, asset managers, investors, financial advisors and service providers, was formed in 2013 with a goal of addressing how market participants weigh immediate financial pressures against long-term objectives. [2] Believing that the balance was skewed toward investors and companies hitting near-term targets at the expense of long-term value creation, FCLTGlobal encourages a longer- term focus in business and investment decision-making and has developed practical tools to facilitate this focus, including:
- Objectives, questions and checklists for boards to use in assessing whether they have effective composition and are giving the appropriate focus, time and support to help their companies maximize long-term value
- Guidelines for investors, asset managers and companies on managing multi-horizon risks, including through communications on strategy, risk and performance
- and on strategic engagement that can enhance mutual understanding and support long-term value
- Guidelines for CEOs in developing a long-term road map designed to attract long-term investors, deter activist attacks, more accurately reflect company valuation, provide strategic clarity and address stakeholder concerns
The world's largest institutional investors have explicitly expressed their belief that companies need to take a long-term view and embrace stakeholder capitalism as the best path to value creation. [3] Many companies are already responding to this view. As other institutional investors continue to develop their own governance teams and as collaboration increases between those teams and their institutions' portfolio managers, we see this investor shift accelerating.
Although, even if this shift occurs, certain activist and other investors will undoubtedly maintain focus on short-term performance. Companies will need to balance these competing investor demands.
Companies are also encouraging a longer view. In June 2018, Business Roundtable, an association of nearly 200 CEOs of major US companies, announced support for companies to end quarterly earnings guidance as a way to shift investors and the financial markets away from an "unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability." [4] Recent reports suggest that companies may be listening. [5]
EPIC's four drivers of long-term growth
Embankment Project for Inclusive Capital says not all drivers of financial expansion are financial.
EPIC was formed by the Coalition for Inclusive Capitalism and EY, with the view that "the health of corporations and financial markets—and public trust in both—is critical to economic growth" and "market participants have a role to ensure long-term value creation that benefits all." Guided by these views, EPIC brought together more than 30 global capital market leaders representing institutional investors, asset managers and companies to work on developing a standardized, material and comparable set of nonfinancial metrics for the measurement of company activities related to long-term value. Having such metrics, together with relevant narrative disclosures, would enable companies to clearly communicate to investors how current investments can create long-term value and provide a useful mix of both short-term and long-term performance measures on financial and nonfinancial matters. EPIC participants believed that by creating and communicating this information, companies would reduce the need for investors to disproportionately rely on short-term results to measure success.
Four key drivers of long-term value
In a report issued in November 2018, [6] EPIC identified four key value drivers of long-term sustainable growth and value:
Talent: Employees have a significant impact on a company's ability to create long-term value by implementing company strategy and developing new ideas for success and growth. EPIC identified three areas where a company's actions on the talent front could influence its long-term prospects and proposed metrics and narrative disclosures for each:
- Human capital deployment, management, engagement and turnover
- Organizational culture and related employee views and data
- Employee health programs, participation and impact on productivity
Innovation and consumer trends: Companies must measure their interaction with and impact on consumers and other stakeholders to assess whether innovation is meeting evolving demands. EPIC identified three related factors for enhanced narrative disclosures and metric development:
- Innovation, with a narrative addressing overall innovation strategy and metrics demonstrating performance against strategy
- Consumer trust scores
- Consumer health impacts
Society and the environment: To be successful in the long term, companies need to understand how they create the social value that provides competitive advantages in attracting talent and customers and that strengthens their "license to operate." EPIC explored how companies can use the United Nations' Sustainable Development Goals (SDGs) by linking them to strategy and explaining how their contribution to SDGs creates long-term value for the company.
Corporate governance: While companies already provide a great deal of disclosure about their boards and governance practices, current disclosures may not clearly demonstrate the quality of the board's composition and governance frameworks and how those assets impact long-term value. EPIC suggests narrative disclosures for companies to consider in better making this demonstration, including:
- Whether the board has conducted a robust evaluation of its composition, dynamics and effectiveness
- Whether the board maintains a decision-useful skills matrix to guide its composition determinations
- Whether the company discloses (without risking competitive harm) strategic milestones achieved or to be achieved in execution of long-term strategy
Developing company-specific metrics to redefine corporate value using EPIC's Long Term Value Framework
EPIC's Long Term Value Framework provides an approach companies can take to identify and evaluate company- relevant key value drivers and to develop nonfinancial metrics that can help clarify value and value creation.
Any given general metric may not be relevant to all companies. EPIC participants noted that company and industry differences are a key challenge to the development of any broadly applicable nonfinancial metrics or specific disclosure standards. For this reason, using a concept originally created by EY, working with Cambridge University, EPIC participants further developed and validated the Long Term Value Framework. The Framework outlines four steps companies can take to develop company-specific metrics and accompanying narrative disclosures that enable them to better articulate, in material ways, the long-term value they create.
Sustainability that drives value
The Sustainability Accounting Standards Board (SASB) identifies the issues with long-term impact.
SASB, a private nonprofit organization, works with other prominent private organizations seeking to advance voluntary corporate reporting and disclosure on sustainability issues, including, among others, the Global Reporting Initiative, the International Integrated Reporting Committee and the Task Force on Climate-Related Financial Disclosures.
In November 2018, SASB published a set of detailed, industry-specific accounting standards intended to enable companies to manage, measure and report on sustainability factors that drive value and affect financial performance. [6] In developing its standards, SASB identified 26 broadly relevant sustainability issues and organized them into five groups:
Environment—addresses environmental impacts, either through the use of nonrenewable, natural resources as inputs to the factors of production or through harmful releases into the environment that may result in impacts to the company's financial condition or operating performance
Social Capital—addresses the company's management of relationships with key outside parties, such as customers, local communities, the public and the government on issues related to human rights, local economic development, responsible business practices, customer privacy and other matters
Human Capital—addresses the company's management of human resources as key assets to delivering long-term value on issues that affect employee productivity, labor relations, and the health and safety of employees
Business Model and Innovation—addresses the integration of environmental, human and social issues into the company's value-creation process, including resource recovery, product innovation, and efficiency and responsibility in the design, use phase and disposal of products
Leadership and Governance—addresses the company's management of issues that can create conflict between the business and stakeholders, and relating to regulatory compliance, risk management, safety management, supply-chain and materials sourcing, conflicts of interest, anticompetitive behavior, and corruption and bribery
SASB's standards acknowledge that sustainability issues will have different relevance to different companies. SASB's standards therefore are based on financial materiality and call for companies to report on "the handful of ESG and sustainability topics that most directly impact their long-term value creation."
The future is human
Human capital is a mission-critical asset, says the U.S. Securities and Exchange Commission (SEC).
Regulators are considering the development of new approaches to measuring and reporting value. Through its "Disclosure Effectiveness" and other initiatives, the U.S. Securities and Exchange Commission and its staff (SEC) is reviewing its disclosure requirements and considering and implementing ways to improve those requirements for the benefit of both companies and investors. Additionally, and in light of the SEC's initiatives, the U.S. Government Accountability Office has been asked to prepare a report on public company disclosures and SEC disclosure requirements relating to ESG matters. [8]
Earlier this year, SEC Chairman Jay Clayton spoke about human capital disclosures to the Investor Advisory Committee (IAC). [9] In February, he noted that the SEC's current disclosure rules relating to human capital "date back to a time when companies relied significantly on plant, property and equipment to drive value." [10] And that "Today, human capital and intellectual property often represent an essential resource and driver of performance for many companies. This is a shift from human capital being viewed, at least from an income statement perspective, as a cost."
In March, Clayton reiterated that "the strength of our economy and many of our public companies is due, in significant and increasing part, to human capital and that for some of these companies human capital is a mission-critical asset." [11] Turning to disclosure of this asset, Clayton said, "The historical approach of disclosing only the costs of compensation and benefits is not enough to fully understand the value and impact of human capital on the performance and future prospects of an organization."
Clayton suggested that investors would be better served by understanding how companies look at human capital. He also questioned what boards and investors ask management about human capital. Companies should provide public disclosures that address these questions and give investors management's views on human capital, in particular those on how human capital is contributing to current performance and long-term value.
The SEC staff has also recently addressed ESG and sustainability disclosures. In March 2019, Bill Hinman, Director of the SEC's Division of Corporation Finance, noted that ESG or "sustainability disclosure continues to be of interest to investors and other market participants." [12] Hinman reiterated the effectiveness of a principles-based approach to disclosures, allowing investors to "see the company through the eyes of management."
He also reiterated that companies should consider "how management engages with board members" on the topic, noting that "there should not be material gaps between how the board is briefed and how shareholders are informed."
Disclosing the intangibles
International Organization of Securities Commissions (IOSCO) highlights ESG factors.
In January 2019, IOSCO, an association of national securities regulators whose membership regulates more than 95% of the world's securities markets, published a statement setting out the importance of corporate consideration of ESG matters when disclosing information material to investors' decisions. [13] The SEC did not vote on the publication of IOSCO's statement and therefore the statement should not be viewed as an expression of the SEC's views or as an endorsement by the SEC. IOSCO noted that ESG disclosures are increasing, particularly in some industries, and include "environmental factors related to sustainability and climate change, social factors including labor practices and diversity, and general governance-related factors that have a material impact on [a company's] business."
In its publication, IOSCO "encourages [companies] to consider the materiality of ESG matters to their business and to assess risks and opportunities in light of their business strategy and risk assessment methodology. When ESG matters are considered to be material, [companies] should disclose the impact or potential impact on their financial performance and value creation."
The IOSCO statement is further recognition, this time by global securities regulators, that ESG factors can be relevant to financial performance and corporate value.
Boards find success in the long-term and the intangibles
Boards can guide companies by examining how an expanded view of corporate value over the long term can more accurately define and clarify corporate value in ways that give investors, other stakeholders and the financial markets a clearer view of corporate value, long-term sustainability and the company's related strategy.
By redefining value using the broader and longer-term lens of stakeholder capitalism and linking key nonfinancial metrics of value to strategy execution, companies can better communicate how they are working to achieve long-term value creation and sustainability for themselves, their stakeholders, and society and economies generally. This will help ensure the wider stakeholder perspective is considered, deliver transparency that should increase trust in the business and capital markets, and support more long-term decision-making and investment.
Questions for the board to consider
- How does the company define long-term value? Would a broader definition of value, supported by nonfinancial metrics, allow the company to better articulate its value to investors, other stakeholders and the markets?
- Does the company explain its purpose, culture, investments, innovations and other initiatives and how they are linked and incorporated into strategy in ways that are enhancing the company's competitive position?
- Do the company's communications adequately address the value of certain intangible assets, such as culture, human capital, innovation and corporate governance?
- Can the company quantify the benefits of its ESG or sustainability initiatives to determine their effectiveness and whether to adjust or expand them? Does the company communicate the effectiveness and value of these initiatives in ways that gain stakeholder support?
- What information or communications do key investors and other stakeholders say they need to invest their capital and resources in the company for the long term? Does the company clearly provide these communications in decision-useful ways?
- Do current company performance metrics and executive compensation packages reflect the objectives of the company's long-term strategy?
- How does the company communicate the value of its board, in view of its composition, effectiveness and leadership, and overall governance framework?
1See, g., Global Intangible Finance Tracker (GIFT™) 2018, https://brandfinance.com/knowledge-centre/whitepapers/global-intangible-finance-tracker-gift-2018, 16 October 2018.(go back)
2FCLT Global, Focusing Capital on the Long Term https://www.fcltglobal.org/home(go back)
3See, for example, BlackRock Chairman and CEO Larry Fink's 2019 Letter to CEOs "Purpose & Profit," available
at: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter ("As we enter 2019,
commitment to a long-term approach is more important than ever—the global landscape is increasingly fragile and, as a result, susceptible to short-term behavior by corporations and governments alike."); and State Street Global Advisors President and CEO Cyrus Taraporevala's 2019 letter to corporate board members "Aligning Corporate Culture with Long-Term Strategy," available at https://www.ssga.com/investment- topics/environmental-social-governance/2019/01/2019%20Proxy%20Letter-Aligning%20Corporate%20Culture%20with%20Long-Term%20Strategy.pdf ("Our focus in recent years has been on good governance and other practices that affect a company's ability to generate positive returns for investors over the long run. Those issues span a variety of environmental, social and governance (ESG) topics material to sustainable performance. We approach these issues from the perspective of long-term investment value, not from a political or social agenda (aka 'values')").(go back)
4See "Business Roundtable Supports Move Away from Short-Term Guidance," available at: https://www.businessroundtable.org/archive/media/news-releases/business-roundtable-supports-move-away-short-term-guidance, and related opinion commentary "Short-Termism Is Harming The Economy," by Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and Chairman of the Business Roundtable, and Warren E. Buffett, Chairman of Berkshire Hathaway, Wall Street Journal, June 7, 2018, available at: https://www.wsj.com/articles/short-termism-is-harming-the-economy-1528336801 .(go back)
5See "Dimon and Buffett's call to stop quarterly guidance by companies may already be having an impact," by Jeff Cox, CNBC, September 25, 2018, available at: https://www.cnbc.com/2018/09/25/dimon-and-buffetts-call-to-stop-quarterly-guidance-may-be-having-an-impact.html .(go back)
6Embankment Project for Inclusive Capitalism report, available at: https://www.epic-value.com/#report(go back)
7Sustainability Accounting Standards Board, Standards Overview, available at: https://www.sasb.org/standards-overview/(go back)
8Letter dated July 19, 2018, from Mark Warner, Ranking Member, Subcommittee on Securities, Insurance and Investment, U.S. Senate, to The Honorable Gene Dodaro, Comptroller of the United States, U.S. Government Accountability Office, available at: https://www.scribd.com/document/384237317/2018-07- 19-Gao-Request-Esg(go back)
9The Investor Advisory Committee (IAC) was created under the Dodd-Frank Act and has a statutorily mandated advisory and consultative role on regulatory priorities of the SEC and initiatives that protect investor interests and promote investor confidence. The SEC is required to review any findings or recommendations that the IAC brings before(go back)
10Jay Clayton, Remarks for Telephone Call with SEC Investor Advisory Committee Members, February 6, 2019, available at: https://www.sec.gov/news/public-statement/clayton-remarks-investor-advisory-committee- call-020619(go back)
11Jay Clayton, Remarks to the SEC Investor Advisory Committee, March 28, 2019, available at: https://www.sec.gov/news/public-statement/clayton-remarks-investor-advisory-committee-032819(go back)
12Bill Hinman, "Applying a Principles-Based Approach to Disclosing Complex, Uncertain and Evolving Risks," March 15, 2019, available at: https://www.sec.gov/news/speech/hinman-applying-principles-based- approach-disclosure-031519(go back)
13IOSCO Statement on Disclosure of ESG Matters by Issuers, January 18, 2019, available at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD619.pdf(go back)


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A walker aged in his 50s was airlifted from a mountain after injuring his leg while walking in Snowdonia
He was walking down the 3,000-ft Tryfan yesterday afternoon when he pulled a major muscle in his leg.
The man tried to continue but was in considerable pain. Other members of his group rang for help at around 3pm.
Team members of Ogwen Valley mountain rescue were preparing to deploy when an RAF Sea King helicopter from 22 Squadron in Anglesey located the man and rescued him.
The injured walker was flown to the mountain rescue team base after it was determined he did not need hospital treatment.


text:
I took this picture for a photo contest (yep, that's me and my baby belly)… I didn't win, but I'm sure proud of it and the message for our baby girl. It inspired me to look around for more kid and being a mom quotes.
Being a mom quotes (in photos)10 comments to Being a mom quotes (in photos)
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Episode 166
The Smart Way To Sell Your Business with John Warrillow
Podcast Guest
John Warrillow
Best-Selling Author & Founder of The Value Builder System
"A lot of entrepreneurs sell their businesses because of something called the "freedom point." It's where they wake up one morning and realize that selling can create enough liquid wealth for them to live for the rest of their lives."
You've heard of J.R.R. Tolkien, right?
You know…
The legendary author of the Lord of the Rings trilogy?
The reason we bring him up is because our special guest on today's episode of the podcast is kind of like the J.R.R. Tolkien of the membership and subscription world.
While he's not the creator of hobbits, orcs, or the insanely detailed Elvish language, he IS the best-selling author of an epic trilogy of books that are must-reads for anyone who's serious about building a successful recurring revenue business.
So who is he?
It's none other than John Warrillow!
Each one of his books walks you through the critical steps required to start, grow, and sell your business. And at the core of his message is the importance of recurring revenue.
In today's episode, we explore the nitty gritty process of what it takes to design and build a truly valuable business. The kind that's very attractive to prospective buyers and can be sold for a life-changing amount of money.
Even if you never plan to sell your business, there's a ton of value for you in this episode.
John elaborates on some of the biggest mistakes entrepreneurs make on the journey to building a successful business. Plus, you'll discover some shady tactics that private equity firms use to extract sensitive information about your business.
What's great is that our conversation is grounded in real-life stories and examples of entrepreneurs who've started and sold their own recurring revenue businesses. John shares a ton of golden nuggets from his years of experience and we have a feeling you'll love this episode.
Want to grab the freebies that John mentioned in this episode?
Just click the image below and you'll be taken to his website.
From there, just click the orange FREE Gifts button at the top of the page.
1:30 | Meet John Warrillow! |
4:59 | How to make your business as valuable as possible |
7:11 | How do you know when it's the best time to sell your business? |
13:16 | Big mistakes you should avoid if you ever want to sell your business |
21:21 | From Start to Finish: What's it actually like to sell a business? |
27:13 | Everything you need to know about your churn rate |
33:08 | How to find the right buyer for your business (and why this is so important) |
40:18 | A deeper exploration of the mistakes business owners make when they go to sell |
45:49 | Where to learn more about John |
Full Transcript
Eric: Welcome to the show, John.
John: Thank you, sir. Good to be with you.
Eric: It's a pleasure to have you. I appreciate you so much for taking the time to join us. We actually recorded an interview with you back in June of 2015. In that conversation, we explored a lot of the topics you wrote about in your second book, The Automatic Customer. Since then, it seems like the rest of the world has caught up to your ideas because now membership and subscription businesses are everywhere.
At this point, you have three books you've written, Built to Sell, The Automatic Customer and the brand new one, The Art of Selling Your Business. Can you give us a high-level understanding on the relationship between these books and when one would reach for one versus the other?
John: Built to Sell is really about how do you create a valuable company that's not dependent on you personally. The Automatic Customer you referenced is really about how do you create a recurring revenue company and how do you optimize that? Then the final book, The Art of Selling your Business is really about the process of harvesting the value you've created. You hear all the time about SaaS businesses, membership businesses, ones with recurring revenue that are now trading at multiples of revenue rather than multiples of profit.
A lot of people, in particular those that are in that recurring revenue space are saying, "Well, maybe that was the time I could actually realize some value for all the sacrifice, and that's really The Art of Selling Your Business, is about how do you punch above your weight when it comes to selling your company?
Eric: Perfect. Thank you for that. Now, for those of you who haven't heard our earlier conversation, I highly recommend checking it out. There's a lot of valuable information in there and we'll include a link in the show notes. Now John, it's been some years since we recorded that and from your perspective, how has the landscape shifted for recurring revenue businesses in that time?
John: I think it's even gotten better as a result of the pandemic. The pandemic has been catastrophic for so many people, but for others, in particular membership companies, subscription offerings, I think it has been a boon. Look, people are at home, they've got time, they can start to consume some of these things.
I'll give you an example. Fender sells most of its guitars, of course, through retail outlets. When they sell through a retail outlet, somebody buys a guitar, they very rarely find out anything about the end customer unless they choose to register the guitar with fender. It's just a complete indirect business model.
Well, after the pandemic, they built out a whole subscription offering on teaching people how to use the guitar. Creates another recurring revenue stream for them, it creates a recurring revenue stream for them and gives them a direct relationship with their customers. I don't know if that's possible five years ago. It certainly is possible in the context of kids learning at home and just very comfortable with the online world. I think the pandemic, it certainly accelerated the adoption, a lot of digital offerings, including membership offerings.
Eric: We've definitely seen increased interest in our offering as a result to the pandemic. A lot of people with more time on their hands and wanting to build a virtual or digital offering. But we also see that the same ratio of people fail at getting things off the ground. Just because there is more interest doesn't mean that there's more people having success at starting a business.
Now, a lot of what you focus on in your books are teaching people how to create value in their business, even before they may be considering selling it. What are some of the things that we can do on a day-to-day basis to get our businesses to the point where the acquisition market would value it?
John: The market, when they look at acquiring a business, they're looking for your future potential, usually in their hands, but they're really looking to the future. They're going to look at your growth rate and try to graph that onto their business model. The growth rate of your membership model, your recurring revenue model is going to be important.
They're going to care much more about your recurring revenue than they would your one-off or transactional revenue, so really optimizing your recurring revenue. It can have massive, massive impact. I just got off the phone earlier today. I did an episode of my podcast with a guy named Adii, I hope I'm pronouncing his first name correctly, Pienaar, a South African guy, built a company called Conversio, up to $2 million of recurring revenue.
Well, when he went to market, he was getting offers of three and three and a half times top line revenue. Amazing output, but [inaudible 00:04:32] of the company and out the acquirer can look at that and graft it onto their business.
Eric: Is that something you were seeing before the pandemic or is that a reflection of recent increased appetite for recurring revenue businesses?
John: I think there has been, as a result of the pandemic, a whole army of private equity groups that have seen digital applications, digital products to being a very hot sector. We're seeing lots of different private equity groups start to really gin up the value of these companies because they're seeing the digital adoption happen. There's just a whole legion of private equity groups that are buying these digital companies.
Eric: Now in your most recent book, The Art of Selling Your Business, it's a playbook for small business owners that they can use to successfully navigate the complex and sometimes overwhelming process of actually selling their business. Now, given when you're just talking about, the thing that comes to mind, this voracious appetite of private equity firms, does that mean it's akin to a sellers' market? Does that change how these companies are doing deals with businesses?
John: Yeah, look, it is very much a sellers' market right now. The pandemic has caused interest rates to drop to emergency levels. Buyers, when they buy businesses, they're often using debt in to maximize their return on investment. As a result, evaluations are going up in lockstep and we're seeing this across the board. It's not just small and medium sized businesses as you're seeing in stocks of Tesla, shares of Tesla, Bitcoin. Assets are accelerating very, very quickly as interest rates are dropping.
When an acquirer makes a purchase, they're going to use debt and therefore when debt is cheap, valuations go up. We're seeing lots of examples of these astronomical multiples so it's very much a great time to sell. I'm reminded of one of the people I wrote about in the book, a guy named Rand Fishkin. When it comes to the best time to sell, he learned this very important lesson, that the best time to sell is when somebody's buying.
Right now, there's going to be a lot of acquirers in the marketplace looking for companies. Rand had a great business. He did SEO, optimization software, and so it's called SEOmoz. Built it up to $5 billion in recurring revenue and he was under the impression that he should be trading at about four times revenue.
But the trick was that he was going from five, he expected it to be at 10 the next year. In Rand's mind, his company was worth like $40 million, five, but going to 10 and then times the 4X multiple. He got a call from a guy named Brian Halligan and Halligan is co-founder of HubSpot. Halligan approached Rand and said, "Look, we're thinking about buying your company. And Fishkin said, "Okay, what do you think it's worth?" Brian made them an offer of $25 million of cash and HubSpot stock.
Fishkin had this $40 million number rolling around in his mind and so he chose to turn down Halligan's offer. Instead he raised venture capital, built out a whole different suite of products. Unfortunately, many of them failed and it caused a cashflow crisis in Rand's company. Ultimately, he was removed as the CEO. He actually went through a period of depression where he was diagnosed and went through a very difficult personal period.
Since then he's come out of that and landed on his feet but I interviewed him for the book and I said, "What's your stake in Moz work today?" He said, "John, it's probably not worth anything." I said, "What you mean it's not worth anything?" He said, "Well, based on the way the venture capitalists invested, they use preferred shares and so they're going to get a preferred return. They're going to get all of their return before I get anything."
I said, "Gosh, that's several. What was that offer from HubSpot work today, if you take into consideration the appreciation of the HubSpot stock?" He said, "Well, based on what's happened to HubSpot stock over the years, that offer today would be worth close to $200 million." It's just a good reminder of this idea that the best time to sell your companies when somebody is buying. For a lot of membership companies, a lot of digital companies with recurring revenue, if you've built a successful business, you're going to be a very attractive candidate. If you've got a great offer, it is a great time to consider it.
Eric: If then these people listening, they potentially have a situation where they could sell their company. They have some value that they see in their business. What are some steps that they can take to be proactive about that and putting themselves out there?
John: You're going to want to go, I mean, lay out a whole process in The Art of Selling Your Business about how do you create this competitive landscape for your company, where you've got acquirers effectively bidding over you, bidding one against the other. But before you even start that process, you're going to want to do, I think something called pre-diligence.
Which is effectively assembling all the critical information about your company. What's your recurring revenue? What's your churn rate? What's your involuntary churn versus voluntary churn. All the stuff that you would expect and acquirer to care about in advance and now you're saying, "Well, why on earth would I spend all the time doing that before I even get an offer, before I even start the process?" Here's the reason.
I learned this from Michael Houlihan who started Barefoot Winery. I interviewed him about the sale of Barefoot and Barefoot was a great brand. They built out a ton of distribution at Trader Joe's in the U.S. Houlihan thought that the most natural strategic required for his company was E. & J. Gallo, the big U.S. wine maker. Houlihan thought he'd have one shot at impressing E. & J. Gallo, so he did all this pre-diligence stuff.
He put together his binders, all of the information that he expected E. & J. Gallo to want and to ask about. He went off to E. & J. Gallo with these binders and he said, "That benefited me in two ways." I said, "Okay, what are the two ways?" Well, number one obviously, it helped accelerate the process for them valuating the business and ultimately coming up an offer.
I said, "Okay, what's the second reason?" He said, "Well, it communicated to E. & J. Gallo that I was dressed for the dance. In other words, I was going to sell my company and E. & J. Gallo had an opportunity to buy it. But if they chose to not buy it or drag their feet, I was going to the next competitor.
Having a very polished pre-diligence package communicates to everybody that you are going to market. They will have a shot, but if they miss that shot, it will be gone forever. That's the second reason I think you want to do some of this, what I refer to as pre-diligence upfront before you even start the process of getting bids or getting offers for your company.
Eric: Got it. With that in mind, what are some of the other… because it sounds like that's a mistake that a beginner could make, is not to do the pre-diligence. What are some other mistakes that you see business owners making when it comes to selling their business or approaching it?
John: Giving way too much information early is a huge problem. When you get approached by an acquire, there can be really two or three reasons why they are approaching you. One is a legitimate interest in buying your company. The other is really not. The other is they're using the veil of an acquisition in order to either pick up secret information about your business or find your employees.
I'll give you an example. There is that a private equity company I wrote about in the book where they decided that they wanted to enter a new industry. They were doing a roll-up in that industry. They used a vague letter of intent as a way to get inside 80 different companies. They used this very vague letter of intent, didn't stipulate earn-out or offer price, gave a range, but it was very vague.
But when acquires got this letter of intent from this private equity group, they were all excited and thought, "Man, I'm going to sell my company." They started down the process of revealing way too much, way too early. Including letting the private equity company interview their managers. Well, long story short, they interviewed 80 different companies.
They made two acquisitions and then they turned around and stacked the management team of those two companies they acquired by poaching the C-level executives from all the other 78 companies. They went out and use this veil of an acquisition. That's one of the biggest mistakes that I think entrepreneurs make, is we reveal way too much too early in the process, and including letting an acquirer potentially even talk to your employees.
Eric: Well, I could see definitely one challenge there if I put myself in one of those people's position, is how do you know what's the information that's too much to share? Because you talk one hand about creating a pre-diligence packet, which has information in it. But then there's other information that shouldn't be in it. How do you know?
John: Well, I think you want to run… Again, we outlined this entire process in the book, but the first step of the process starts with what's called a teaser. A teaser is a one-page document, which effectively, it teases the acquirer into wanting to learn more about your company. I remember I learned about these in a funny way. I was in an EO meeting and an EO member that I was on a board… EO stands for entrepreneurial organizations. It's a mastermind organization.
I'm in my EO meeting and this guy named Sam, in all of our breaks, in all of our downtime had this little piece of paper he kept unfolding and working on. It was like this dog-eared ancient piece of paper with all sorts of cracks and crevices in the highlights. You could tell he'd been working on it for years.
Finally, I'd gotten to know Sam well enough to turn around and say, "Sam, what's with the piece of paper? What is that thing?" He said, "It's my teaser." I said, "What do you mean it's your teaser?" He, "Well, that's the document I use to market my business to potential acquirers." He was working on it for years leading up to the sale of his company, but the teaser's important because it's how you position your business in the eyes of an acquire.
It's what industry are you in? How fast are you growing? What are your churn rates? What is really unique about your business. But it does not include the name of your company. It's sufficiently vague to force acquires to remain curious about who you are. The teaser, if written well, will trigger an acquirer to sign a nondisclosure agreement in order to get what's called a CIM, and that's when the name of your company is revealed.
But it's only revealed after a nondisclosure agreement is put in place, and usually if you're working with a good lawyer, that also includes a non-solicitation. You're covering the process legally so you're minimizing the chances that someone would use the veil of an acquisition in order to learn your deepest darkest secrets.
Eric: In this situation, going back to the story about the private equity firm who interviewed the 80 different companies, in that situation were none of those people signing non-disclosures? And if they had, would that have protected them against the ultimate outcome of that situation?
John: Yeah. That example, it was where the private equity group used, again, this fairly vague non-committal letter of intent as a way to get inside under the covers. The sellers were not proactively running the process I'm describing. They were on their back foot reacting to an inbound inquiry. When you're reacting effectively, you're playing defense. They are basically approaching that company, and so no.
The private equity company would not have been in their best interest to sign an NDA so they in most cases would not have signed an NDA with the acquiring companies. They're simply using, again, the veil of an acquisition in order to get an entrepreneur excited enough to start to open their kimono way too early.
Eric: I've had that experience. I don't know if it was tied to the same thing, but I've definitely over the years had a number of emails from private equity groups, venture capital, and a lot of the times it ended up being some intern level type person who you end up talking to and they're interviewing you about something and asking you information. Is that the situation?
John: Yeah. I think you can tell a lot by who's doing the asking. Again, I'll go back to Adii Pienaar, the entrepreneur I referenced early in the conversation that built this company called Conversio. He went out and sent the teaser document that I'm describing to 150 different businesses, and received lots of different inbound inquiries based on the teaser.
Now, he bucketed or divided the inbound interest into two buckets. There are the vaguely interesting opportunities and then there were the very, very serious buyers. I asked him on the podcast, I said, "How did you distinguish between the two?" He said, "Well, it came down to who was making the inquiry." When the inquiry came, in his case it came from a company called Campaign Monitor, very established strategic acquirer, and they were owned by a private equity group.
The private equity group person making the ask of Adii or raising his hand saying he was interested in the teaser was a senior partner from the private equity group. Which was a very strong buying signal. Had it been an analyst level person at the private equity group or a vice-president at the private equity group, that would have fallen into the first bucket of vaguely interesting. But when a senior partner from a private equity group that is backing one of the strategic acquirers reached out, he knew that was a really strong opportunity.
I think asking yourself, what's the title on the business card in the footer of the email? Most private equity groups give away vice-president titles to newly minted MBAs and young kids right out of school. It's not a big title. Whereas senior partner or partner is a much more indicative of a decision maker within a private equity group.
Eric: There's a lot of reasons so far that we've talked about given the nature of the environment and the pandemic and everything, that it seems like an ideal time, sorry, it doesn't seem like, it is an ideal time to sell a business. That might get a lot of people excited. We've talked a little bit about, okay, well, if you are, what can you do to start that process? A lot of it's outlined in your book and we touched on a few things.
But I'm interested in a higher-level picture here because entering into this for someone like me who's never sold a business. What is that experience actually like? Is there a way that we can get a high level, just piece of what the race looks like from start to finish of what the experience is going to be like to sell a business?
John: Yeah. Look, there's a couple of key gates along the way. The first as I referenced, is in a formal process itself, is a teaser. Again, you're probably talking hundreds of different companies that you're going out to with a teaser. Strategic acquirers, private equity groups and individual investors. Then the next gate, if you will, is that some of those people will raise their hand and say, "Yeah, I'm interested enough to sign a nondisclosure agreement." At which time the second gate or second step in the process is a confidential information memorandum or CIM. This is a document that you put together that describes more detail about your business.
That's when you get into details about your products, your growth rate, your future projections and so forth. Then based on the CIM, the next gate is that some people will raise their hand and say, "Man, I really liked this company. I'd like to meet with a management team." That's the step in the process where you're meeting, what are called management meetings. These days they're held over Zoom but before they used to be held in-person. That's when you will be grilled with a litany of questions from potential acquirers.
Then that then breaks down into another round of what are called letters of intent, where the people that you've met within the management team meetings will put their letter of intent together, which is a written, usually non-binding offer for your company. You then will have to sign as part of all those letters of intent, they will likely be a no-shop clause. Which means that if you sign a letter of intent, you will end up giving up the rights to negotiate with the other potential acquirers. It's at the letter of intent stage that you're trying to effectively maximize the value of your company.
In the case of Adii from Conversio, he went out more than a hundred different acquirers. He did management presentations with a number of different companies. He got two formal letters of intent, but instead of just signing one of them, he basically used the fact that there were two competing bidders for his company and played one off the other to a point where he was able to raise the value he got for his company by 35%.
Just strictly negotiating playing one off the other, off the other in a sequence of back and forth negotiations. Then there's the process of due diligence. Then there's a closing meeting where the check gets wired to your bank account. That's effectively the process. Does that answer your question?
Eric: Yeah, for sure.
John: … about the 30,000-foot level?
Eric: Yes. It still leaves one question in my mind, as someone who started the company from scratch, which is after the check is in the bank and all of that is done, what happens to the company? What happens to the people who work for the company? Of course, this is going to be different depending on the circumstances, but what are some of the usual ways that this goes through?
John: As the owner, you're likely to have to agree to some form of transition period where you stay on in the business. That can in a very small company, if let's say you have $300,000 of revenue and you have a membership website, well, the most likely acquirer for that business is going to be an individual investor. Someone who has an interest in that space and they are likely going to need to borrow money.
When they borrow money, they often do it from the SBA in the United States and the SBA will guarantee a loan, but they'll often ask you to finance some of their money in what's called vendor financing or vendor take-back. Whereas in effect, you're putting some of your proceeds at risk and agreeing to take it over time. That's one potential transition function.
Another is where usually in a private equity deal, you'll be asked to roll some equity into a new entity. Now, what does that means? It means that instead of buying a 100% of your company, they will likely buy 60, 70, 80% of your business and then say, "But we want you to hold on to 20, 30, 40% and we're going to roll that into a new legal entity. Over the next five or seven years, we're going to grow that up to a point where it will hopefully be a sellable asset."
In that case, you're still a shareholder of the business and a minority investor in the company. You're oftentimes asked to continue to run your business, even though you don't own the majority of the shares anymore in a private equity deal. Then the third scenario, a strategic acquisition, oftentimes the acquirer will use what's called an earn-out, which is a way to effectively set a set of goals for you as a division of their company and if you achieve those goals in the future, you'll receive an extra chunk of value.
Those are the three most likely scenarios, but in any event, you're likely to be asked to stay on for a period. Could be as little as a year, could be as long as seven years depending on the structure of the deal.
Eric: Got it. Do you have any examples of content-based businesses being sold, like membership sites, community sites, et cetera?
John: Obviously, there are lots of examples out there. One of my favorite is a guy named Trevor McKendrick who built a Spanish language Bible application. It was basically, as the name suggests, it was an application where he took the Bible and translated in Spanish. He had a million users and he sold the business and a great little exit. It was not a big company, five or $600,000, as memory serves in a way of revenue. But a successful exit for him for sure.
Again, in a recurring revenue businesses, there are different types, obviously. There are membership websites, membership offerings, and then there are SaaS companies or software as a service companies. What I would encourage anyone in the membership space to look carefully at is going to be your churn rate. Because an acquirer will really scrutinize your churn rate.
From what I've experienced, membership websites, often business to consumer membership websites have a higher churn rate than a business-to-business membership website. I don't know. Would that hold true for you, Eric? Is that what you've seen among your customers?
Eric: For sure.
John: In lockstep business to consumer membership websites generally trade at a lower multiple than business-to-business membership websites because the business-to-business membership is perceived as being stickier. It's got a lower churn rate and churn is going to be one of the biggest drivers of the value of your company.
When you've got, let's say 5% share in a month on $100,000 in revenue, or $100,000 of ARR as an example, well, that's not that much to replace, but if you have a million dollars of ARR $10 million of ARR, 5% churn a month would be virtually impossible to replace. The bigger your company gets, the more likely it is to slow down if you haven't been able to manage churn. Churn is going to be a really important driver.
If you have a model where it's virtually impossible, you've just got some natural churn… If I just go back to Adii's business, Adii had Conversio, it was a $2 million business. They had 5% monthly churn. I asked Adii to break that down, that sounds pretty high, that's 60% annually. How does that break down? He said, "Well, we were selling to the SMB market and they were selling people who use Shopify as their E-commerce engine.
Shopify attracts a lot of new business owners, a lot of brand-new entrepreneurs who don't necessarily know what they're doing. When you unpack the 5% monthly churn, it turned out 4% of it was involuntary churn. Meaning it wasn't their decision. The business had gone bankrupt and therefore didn't need Conversio software anymore.
Again, you're going to want to look, get a handle on churn overall, but try to isolate your involuntary churn and your voluntary insurance. It's one of the reasons by the way, that membership sites and SaaS companies that sell to larger enterprise organizations are generally valued at a higher multiple than those selling to the SMB or small medium business market. Just because the involuntary churn in the SMB market tends to be quite high because people go in and out of business at a higher rate.
Eric: We definitely experienced that. That's pretty much we're in a similar situation at Shopify because we're a provider of a service that people need as the foundational building block of a business, so we have anywhere from people who just woke up one morning and want to start a business this weekend, to people that are on their third or fourth recurring revenue business and know exactly what they need to do, have a development team who's a very experienced all this other stuff. Our involuntary churn is, I've always looked at it as it's the same percentage as when people give a quote of how many people go to start a business and fail.
John: Absolutely. Unfortunately, an acquirer is not going to look at that and say, "That's fine. That was involuntary churn." They're still going to discount because you had an involuntary churn, because they're going to say, "Regardless of why they churned, it's still churn." What you can try to do as best you can, is manage down your net churn rate.
Your net churn rate, as you probably know, is the difference between your gross churn and your upgrade revenue. If you've got any upgrade path that you've got with existing customers, let's say you have a silver membership program and you have a gold membership program, if you can offset some or even all of your gross churn with people who upgrade from silver to gold, as an example, well, now you've got a very valuable company because you can make the case that on a net basis… If you can get to negative net churn, that's really the panacea.
It doesn't always happen. It's very, very high bar to reach, but when it does, it can absolutely jack up the value per capita. I'm reminded of Rob Walling who built a company called Drip. Drip does email marketing, where he was at the point of having $2 million of annual recurring revenue. Not a really big company, but he had successfully managed churn down to negative net churn, which means that his upgrade revenue actually exceeded his gross churn. Because he charged on number of contacts in his system.
The more contacts you uploaded into Drip, the more he charged you and as a result, he was able to achieve negative net churn. Well, when he sold Drip to lead pages, he was looking at offers in the nine to 12 times revenue. Not nine to 12 times earnings but nine to 12 times revenue. Again, that's the top, top, top, top, top end of valuation. But it's possible if you are able to manage down your churn to a negative net churn number.
Eric: That's really amazing. When you're in the negotiation process, obviously in any industry where there's huge opportunity, you have different levels of people with different levels of ethics approaching how they're going to succeed in accomplishing their goals. As people with different experience levels are going through this process of selling their business, what are some of the things that they can and should look out for in terms of knowing if they're building the relationship with the right partner?
John: Look, I think you want to understand how the acquirer is going to get a return on their investment. In particular, that's going to be really important when a private equity company is looking at you by your business. Because a private equity company is not buying your business for lifestyle reasons. They're not buying your business because they love your brand or they love your product.
They're not buying it for a strategic reason where your company is worth more in their hands as it is worth in your hands. They are buying your business to flip it. That's what a private equity company do. They buy low and they sell high. I would be asking myself, what do you see as the opportunity to create value? What you're really want to listen for is are you comfortable with the changes they're planning to make?
Let me give you an example. There's a woman named Sherry Deutschmann that I interviewed for the podcast. She built a wonderful business where they did billing software for hospitals. It wasn't a software, actually. It was a billing process for hospitals. You get your kidney replaced and they'd send you a bill. She was the one who actually printed the bill, sent it, later mail out to the patient. Great little business. They started off from scratch and from the early days, she wanted to share the wealth with her employees.
Many of whom were ranking file, people working on the printing press, relatively low paid people and she wanted to share in the profits, so she created a profit-sharing program. First month or two, it was negligible. It was a few dollars on someone's paycheck. But every single month, Sherry brought all the company employees together and described how they performed and how much they were getting in their profit-sharing program.
Well, long story short, over years and years and years, she built this business up to 40 employees, 7 million in revenue when she decided to sell. She got a beautiful acquisition offer from a private equity group and she fell in love with this company and shows to sell to them.
Well, a couple of weeks after she sold, she was still on the board of the company and still very much actively involved when the private equity company came to her and said, "Look, I know you've been doing this profit-sharing thing for a while, but man, it's getting to be a pretty big number and it's really screwing up our return statistics or amount here. We're going to have to eliminate the profit-sharing program." Sherry said, "But guys, this is the part of our culture. This is why people work here. This is the way we give back."
They said, "Yeah, but look over here on line 14 of my spreadsheet here. You can see that if we removed the profit-sharing plan, we increase our return on investment by 16.4%." Long story short, they eliminated the profit-sharing program. When I spoke to Sherry, three of her 40 employees were still at the company. 37 of the 40 had left the business.
Look, everybody loses in that scenario. Sherry loses, her employees lose, the private equity company loses because they've effectively bought something that's cratering and value because the employees are leaving, and nothing good came out of that. Long story short, I think what you want to really scrutinize is say, "Okay, you're a financial buyer. You're interested in buying my company. What are the things you're going to change that will enable you to create a return?" And listen very carefully to the way they're planning to make the business worth more valuable in their hands.
Because by definition, they are going to change the way you do business. They're going to change your processes and procedures, and likely you're the author of those processes and procedures and so it can feel like open-heart surgery when your business is being effectively re-engineered when you're the one who created those policies and procedures. It can be very traumatic for folks.
Eric: Which is personally precisely why anytime I've received any emails like that, I ignore them. Because I think about that scenario. A lot of the building the business for me has been creating a place where I want to work. Essentially, it hasn't been a strategic endeavor in a sense. You know what I mean? It didn't set out from day one, "I'm going to be an entrepreneur and I want to do this and get here and make this and do that." For me, thinking about selling my business, it's a personal choice rather than hard numbers.
John: I get that. At the same time, I think the flip side of that coin and the reason I think a lot of entrepreneurs choose to go down the route of selling even though the potential for a private equity group doing what I just described exists, is they reach something called the freedom point, where they wake up one morning and realize that the sale of their business will create enough liquid wealth they can live for the rest of their lives.
The second thing they realize is that every day I retain 100% ownership of my company. I'm effectively risking financial freedom in return for something I may not want. I've reached the point where the ultimate goal was to achieve freedom, which is, I think that the underlying motivation of most entrepreneurs deciding what they do, what creative projects they work on.
When the sale of your business would create a nest egg for you to be financially independent, you are effectively risking that freedom every day you hold your business. Because we don't know what's around the corner. We don't know if membership websites will fall out of favor or if private equity groups stop buying businesses if interest rates go to 10%.
We don't know what the future will hold and if 50, 60, 70, 80% of your net worth is the shares in your privately held business, it gets to a point where a lot of people just go, I can't stomach the risk. I go back to the entrepreneur I've referenced a couple of times, Adii, he just happens to be top of mind for me because I literally just interviewed him.
I asked Adii, "What triggered you to want to sell?" He said, "Well, really it came down to diversification. I built this business up. They were two million in recurring revenue. He figured that maybe he could get three times revenue. In his mind, it was a $6 million investment. It represented the vast majority of his net worth. The concept of diversification had been drilled into his head from childhood and here he was diversified in his stock portfolio but totally undiversified overall because $6 million represented a huge proportion of his net worth. He just said, I can't stomach the risk anymore. And that's what triggered him to want to sell.
Eric: Well, that makes a lot of sense. If I knew what questions to ask as someone who had some familiarity with this process and et cetera, what questions would I be asking you that I haven't already asked you?
John: Well, I think you've asked a ton of great questions. I think one of the ones that you've asked but maybe I'll provide a slightly different answer to, which is what are some of the most common mistakes that entrepreneurs make in the process of selling their company.
One of the big mistakes we hear is that entrepreneurs will answer the question, what do you want for your company? That's almost always a mistake because you can do one of two things. You can throw it an outlandish number. A number so high that there's no way that an acquirer was even thinking possibly about that number. Here's the problem with doing that. You'll oftentimes be perceived as so out-to-lunch and so unaware of the multiples in your space that the acquirer will go, "Okay, thanks very much." And they'll dismiss you as a quack.
You could throw out some really high number, and it's not like they're going to enter into negotiation with you. Because many of them will just walk and say, guy is a quack. Likewise, if you throw out a more reasonable number, you're almost always putting a ceiling onto which you will never sell your company for.
I'll give an example. There's a guy named Kris Jones I wrote about in the book. He built a great company called PepperJam. They did affiliate marketing programs. Kris got a call out of the blue from a guy named Michael Rubin. Michael built a company, GSI, sold it to PayPal. Huge massive success in the tech industry. Kris Jones was flattered to get a call from Mike Rubin and Michael Rubin said, "Why don't you come down to my office? We'll have a little chat about your company."
Jones walked in thinking he was going to have a one-on-one with a fellow tech luminary. But Rubin, when he opened his door was not alone. He was flanked by his chief financial officer and his head legal counsel. Jones looked a bit of gas to take it back. Without really exchanging pleasantries, Rubin just asked Jones, "Okay, what do you want for PepperJam?" Jones is really, he's like, "What do you think, what do I want for PepperJam?" I was expecting to come here for a casual coffee.
Rubin just went back in and said, "No, what do you want for your company?" Jones' feeling on the spot blurted out a number and Rubin without really acknowledging the answer, turned to his CFO and said, "Okay, I think we can get a deal done." What he was doing was communicating to a CFO that he was not to pay a penny more than the number of Kris Jones just uttered.
Jones, when I interviewed him for the book and I said, "Would you do anything different about that if you had to do over again?" He said, "Yeah, I wouldn't have answered the question. I would have differed." I think, if I go back to Adii Pienaar, the guy sold Conversio, he had an M and A professional and the M and A professional had one rule.
That was that Adii, when you go into those management meetings with all the potential acquires I'm going to line up for you, you can answer any question, any question that they ask you with the exception of one question. Adii said, "Okay, what's the one question?" He said, "Anything around the value of your business, what you want for your business, you differ and you give that to me."
He knew, the M and A professional knew that by answering anything around valuation, Adii was effectually negotiating with himself. It's a common trap that acquirers will try to make an unsuspecting, a new entrepreneur that's first to the process to try to answer.
Eric: I can just almost put myself in that situation and imagine the emotionality that Jones was feeling. In situations like that, forget whether it's about mergers and acquisitions situation, it's hard to feel the discomfort of what that feels like and not do something. Which is the strategy of the people doing it.
John: Exactly right. Again, remember there's something in the mergers and acquisitions world called the five to 20 rule. That states that the natural acquirer for your membership site is going to be a business five to 20 times the size of your company. By definition, it's likely a company you've heard of, likely a company you respect and likely a company much larger than yours.
Almost by definition, you are likely to be flattered to be asked, somewhat enamored, somewhat feeling all impressed with yourself that this big company that you think of as a leader in the industry has expressed interest in your company and it can feel very validating. All of that halcyon glow, that warm feeling you get for being flattered can really be a trap because the acquirer will use that as a way to make themselves appear like your friend.
They shower you with praise about what you build and then maybe after a glass of wine, certainly after a fancy lunch, they'll turn to you and say, "What's your bottom line? What do you think your company is worth?" It seems like such an innocuous question to answer but it almost always backfires.
Eric: Well, I certainly appreciate you sharing that, John. It seems like one of those critical things, so thank you for putting out there for everyone. I think we're pretty much at the end here. I really appreciate your time and your candor and everything you shared here. I just want to mention everybody, again, John just came out with this book, The Art of Selling Your Business.
Everything that he shared here, which is on its own very valuable also came with, well, I go into much more detail in my book, so it's definitely something that's piqued my interest to go check out, so I encourage everybody to do that as well. John, where's the best place people can go to get your books?
John: The best place to go is probably just builttosell.com, which is the website for all of the books. Then on the top right-hand corner, you'll see the word free gifts. If you click on that and enter your email, we'll send you a free chapter of the book along with, you'll get an episode of Built to Sell Radio once a week. People like Adii, some of the other entrepreneurs, Rob Walling, people that I've referenced on the call are all people I've interviewed for Built to Sell Radio. That's free and it's an opportunity to just hear some other stories of other entrepreneurs who sold.
Eric: Perfect. Again, thank you John so much for your time. It's been really great chatting with you.
John: Thanks sir.
Thank you so much for listening to this entire episode of our podcast.
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Many thanks to John for coming on our show and sharing so freely from his years of experience.
To get links to all the resources we mentioned in this episode, you can head on over to SubscriptionEntrepreneur.com/166.
There you'll also find the complete show notes and a downloadable transcript of our conversation.
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John's Books:
- Built to Sell: Creating a Business that Can Thrive Without You
- The Automatic Customer: Creating a Subscription Business in Any Industry
- The Art of Selling Your Business: Winning Strategies & Secret Hacks for Exiting on Top
People & Businesses:
- Adii Pienaar – Conversio
- Rand Fishkin – Moz
- Michael Houlihan – Barefoot Wines
- Sherry Deutschmann – LetterLogic
- Chris Jones – PepperJam
Thanks for Listening!
Thank you so much for listening to this episode of our podcast. We hope you enjoyed our conversation with John and have a much better understanding of what it takes to successfully sell your business.
As you listened to this episode, did any lightbulbs go off in your head? Did any questions come up that you'd like to ask us? Leave us a comment below and join in on our discussion. We'd love to hear from you.