Monday, October 26, 2009

Interview with Mark Goodman of e-Conversation

We are continually asked by owners how they can enhance their businesses prior to pursuing a third party sale. This is a complex question and requires a indepth understanding of the business and its operations. However, ensuring that your top line sales are growing and that you have solid brand awareness are critical to attracting potential buyers to your business.

We recently had the opportunity to interview Mark Goodman who has created a platform to help companies leverage the internet in a unique way to enhance their online presence.

Mark is the CEO of e-Conversation a consulting based business focused around using video and social media to create client awareness and loyalty. Mark has a varied work experience. He was an educational television producer/director and a film buyer for a national theatre chain. Following that experience, Mark spent many years working for Motorola. He was one of the first business people in the cell phone group, rising to positions in distribution, marketing, and business management. Mark also developed and implemented internet strategies. Then he went on to manage service, parts and major account business opportunities. Subsequent to his experience at Motorola, Mark worked in sales management for a Silicon Valley company.

Mark has an MBA and an MA in Radio/TV/Film.

Mark, you are an expert in attracting and maintaining customers using new Web 2.0 internet tools, before we talk about how to use the tools, tell me how this creates value for a business.
There is a traditional value and a non traditional value to taking advantage of the new tools. First, let’s talk about the traditional one. Using the tools and the processes below, you can dramatically lower your costs of selling and customer support. Customers and users are looking to get answers on line. Below, you will find a process that allows for the creation of answer bits in multiple media. Lower sales and support costs translate into greater profits.

Now, let’s look at the non traditional value. The size of your social media audience can increase the value of your company. If you were supporting hundreds of users through Twitter or YouTube, that would be part of your valuation. Recently, companies have been hiring individuals based on their internet following. Companies like Twitter are totally valued on number of participants. Being a “recognized” expert for Google or YouTube, creates value beyond the ordinary.

How does a company need to change how they are creating content to attract Web 2.0 customers and users?
The content creation plan for a small business used to be pretty simple. When you rolled out a new product, you did a brochure and maybe a press release. Perhaps you ran a small ad. You trained your sales force, then got going. When it came to customer support, your technical people trained phone support.

What has changed in the last 10 years. First, your brochure went on line. Then, you decided rather than running ads, you would have buyers come to you using pay per click and search engine optimization. More and more, your buyers and customers did not want to see a sales person, but wanted to find the answers to their questions on line.

How has that changed how you create content?
When searching on line, your users want to find the answer to their individual question(s). The typical searcher is typing in four or five words. In a “decision engine” perhaps even asking a question. So rather than a brochure, white paper or FAQ list, you need to create an “answer bit”.

Also, realize that your buyers or users looking for service want to find the content in the media that they are comfortable with. Some buyers want to find it in a blog. Others, are YouTube viewers, some are searchers of Google or Bing. You can maximize the reach of your content by representing it in various media, if you plan for it in advance.

Our content creation process is based on the “interview” model. The content creation starts with a TV show. This is a 25 minute show that runs once a week. We have found that with the interview process, subject matter experts are more engaging, and answer length is more manageable.

The show is posted in its entirety on BLIP.TV. The show is then edited into clips and put on YouTube. The clips are also turned into blog postings. You can also reference the content in an email campaign. Content is then embedded on your website in the appropriate portions of the website.

Isn’t that a pretty complex and expensive process?
The key to keeping the costs down is designing the interview up front. The interview questions are created so that they can easily be cut into segments. Additionally, the dialogue during the interview focuses on topical issues that can be reconfigured into a blog posting. Lastly, we watch the length and complexity of the answers to insure that the clip will play well in the YouTube environment. Each question is its own answer bit. An answer has to be complete enough to answer a question, but not so complex as to lose the viewer.

The weekly show allows for the creation of continual content. Both users and search engines like the creation of continual content. The more users and viewers that you have in you channel or blog, the more Web 2.0 referrers will route people to you. When you reach a volume on a YouTube channel, you start to get more people finding you. It is not a linear increase, more of a quantum leap.

Mark, can you cite an example of a company you have worked with that deployed these services and experienced an increase in sales?
Absolutely. One local organization that we worked with recently has seen an increase in two of their offerings. Sales of one product line were up over 50% for the last 6 months, as compared to the 6 months prior. In addition, the volume through their local facility was up 30% in September as compared to September 2008.

This client understood the value of our services and the fact that they are most effective when used as part of a total marketing plan. We worked with the client to develop web content and that became the perfect complement to optimized search and pay per click.

How does someone get started?
The first step is making an inventory of what questions prospects, customers, and users are asking. If you are doing search engine optimization, that’s a good place to start.

You can do a couple of segments to try it out, but, just doing one or two segments, won’t help draw traffic. On the other hand, a regular program can have significant value on your sales, costs and valuation.

Chances are your customers are looking for products and services online and your ability to deliver relevant content can easily separate you from the competition. You can reach Mark at to learn more about the above services.

Tuesday, October 13, 2009

Interview with SCORE Chapter Chair Eshwar Noojibal

ESHWAR NOOJIBAIL is the chapter chair of SCORE Chicago which provides free business counseling and management consulting for people who already own a business or for those who are thinking about starting or buying a business. At the heart of SCORE are a group of experienced counselors who volunteer their time to help existing or budding entrepreneurs. The Chicago chapter has more than 25 locations in the greater Chicagoland area.

Eshwar has over 40 years of professional and business experiences in academic, manufacturing, environmental and construction industries, as a college professor, Chief Industrial Engineer, Production Control Manager, and as CEO. Most of the key experiences were in the area of corporate management; financing; specialty construction; marketing; new business start-ups; new product development and introduction; manufacturing; production management; warehousing and distribution systems; plant layouts; new plant start-ups. In 1980 he started a specialty contracting company specializing in process piping and Design Build Engineered Energy Management Systems. His education background includes, B.S, I.E, from University of Michigan, Physics and M.E. from universities in India, and M.S.I.E from Illinois Institute of Technology. He is a licensed Professional Engineer of Illinois and Certified Energy Manager, Member of American Association of Energy Engineers, American Production and Inventory Control Society, American Institute of Industrial engineers.

We recently caught up with Eshwar for one of our BizBrokerJournal interviews.

Eshwar, thank you for taking the time. Can you tell our audience how SCORE can help someone who is planning to purchase a business?
For an entrepreneur, buying a business is very exciting, yet it can be a daunting task. It is very easy to overlook the need for a detailed evaluation of the potential transaction. Often they think that they can avoid the necessary and arduous tasks, such as writing s business plan, going through the whole start up process, securing financing, etc. This is far from the reality. Of course, to some extent, buying an existing business shortens the new business start up time line. Yes, it has an advantage of having an existing organization in operation. That includes, customer base, supplier chain, may be even the bank relationship. More than anything, the lure of an existing cash flow stream blinds the entrepreneur rushing into completing the transaction as soon as possible. Here is where a SCORE counselor can be of an immense help. He doesn’t have the interests of broker, nor of the seller. His interest is solely on his client.

The counselor starts by helping the entrepreneur in evaluating his personal background including his experience, goals, and financial status. Then, the counselor would take the important steps of guiding his client through the detailed tasks of due diligence, market value, business plan formation, financing and deal consummation.

How can SCORE help an existing business owner improve their operation?
Every existing business wants to improve; there is no surprise in that. The question is what areas they need improving. More often than not, businesses have a difficult time determining what specific area (s) they need help. Needless to say, all businesses want to fatten their bottom line. How can they do this?

The SCORE counselor working closely with his client analyzes the entire business, starting from the owner to shipping clerk; from sales to delivery; from marketing to financing, from operation to personnel management. The goal is to treat the very decease, not just the symptom. The counselor knows that every segment of the business contributes to profit. Then, what particular areas the business should improve? How can they accomplish that? What are the alternate solutions? What resources the business needs? Can they afford to do that? What is the expected return on investment? These are some of the questions the counselor would help the business to address.

How has SCORE Chicago changed in the last few years to keep up with the changing business world?
SCORE counselors undergo serious and continuous education and training program to keep up with the ever changing and fluid business environment. There are technological changes to keep up; there are demographical shifts to observe; there are consumer behaviors to understand; there is a tightening credit market to contend with; and the new SCORE counselor is ready for all the changes and ready to counsel his client.

Counselors are experienced enough to know that fundamental business concepts have not changed; however they are keenly aware of the changes in demographics, geographics, psychographics and the buying behavior of the business clients. The businesses still have to determine the needs of their clients; they still have to provide value to them; still they have to be competitive; they still have to provide superb service to their clients; still they have to make the product or service available to the clients, at right time, at right place and at right price.

How does someone get started with SCORE Chicago?
One can get involved with SCORE Chicago in several ways. They can volunteer as a Counselor, and join the other 11,500 counselors nationwide providing services through 370 local chapters. Interested and qualified professionals, in business or just retired who sincerely believe in improving their communities by creating new jobs, can contact the local chapters on how to become a SCORE counselor.

One can support the SCORE mission by contributing to their cause as a donor by contacting the local or national chapter. SCORE generally is dependent upon the local donors for 25 to 30% of their operating budget. The rest of the resources are self generated by their chapters and a small grant from the Small Business Administration. Often, some of their clients also donate to SCORE as an appreciation for receiving substantial free counseling, consulting and mentoring services.

You can become a sponsor of SCORE activities. The sponsor generally supports workshops, or other services to be conducted at the sponsors’ premises. Or the sponsor just donates a fixed amount of money once a year supporting SCORE CAUSES.

You don’t have time? You can be a resource counselor for SCORE. You can provide your expertise that might be tapped by a SCORE counselor on as needed basis, including conducting advanced business topic workshops, or offering other services that SCORE clients might be seeking. SCORE depends on their workshops for over 50% of their funding requirements. SCORE Chicago conducts over 125 for fee workshops per year and another 130 free workshops all over Chicagoland.

Can you give us an example of some success story of someone who worked with SCORE Chicago?
Chicago School Supply—A Story of Growth
Michael Ockrim began selling school and office supplies, as well as furniture and equipment, to schools in the City of Chicago. His company, Chicago School Supply, LLC, sought to take advantage of a gap in the school supply market to fulfill the needs of Chicago schools. Michael came to SCORE in need of help in expanding his business
Three SCORE counselors, Gene Migely, Norm Letofsky, and Phil Hartung, worked with Michael to develop hiring, training and compensation plans and to deal with a multitude of business issues. They continued to meet with Michael every three months to review his progress and to advise on actions and plans.

Since it started, Chicago School Supply has added three sales representatives, an office manager and three e-commerce websites. In 2008 the company achieved over one million dollars in annual revenue, which represents a 180% growth, and the company continues to grow.

Michael had the following to say about the help he received from SCORE:
“As an entrepreneur, it is important to surround yourself with smart people that challenge your thoughts and business model. The SCORE coaches inspire critical thinking and provide excellent outside perspective. Oftentimes, as business owners, we become so consumed by our day-to-day corporate minutia that we fail to see the bigger picture or analyze the core competencies that have made us successful. Thank you SCORE for taking the time and effort to work with me and Chicago School Supply!”

As the new chapter chair for SCORE Chicago, what would you say to someone who is thinking about contacting SCORE Chicago for advice?
We, at SCORE offer our services to two distinct groups; 1) those who are already in business, and 2) those who are considering entering their own venture. As you can imagine, the advice is different for each of these groups.

The best way to determine if SCORE Chicago can help you is to visit our website and to set up an initial consultation with a counselor.

In our experience, SCORE is a great resource that is available to anyone facing the challenges of owning, starting or buying a business. We appreciate Eshwar taking some time to share his thoughts and insights.

Friday, October 2, 2009

Deal Strategies from an Attorney's Perspective

It has been a challenging year on many levels. In the business transaction marketplace the deal advisors have had to dig deep into their reservoir of experiences to put and keep deals together. In a normal market, creativity is a primary factor in helping buyers and selling and that is especially true in this economy.
I recently had the opportunity to speak with Markus May, an attorney with Eckhart Kolak, who specializes in Mergers and acquisitions. Markus shared some interesting insights about the current market and potential strategies to get deals done.

Interview with Markus May from Eckhart Kolak:

Q: What kinds of deals are typical for you and your firm?
A: As a small boutique business law firm in the Chicago Loop, we see a wide range of deals. We have helped numerous “main street” businesses with a sales price of less than $1,000,000 and up to $40,000,000. Our sweet spot tends to be businesses selling in the $750,000 to $5,000,000 range.

Q: What has the M&A market been like in 2009?
A: It has been an interesting year from a mergers and acquisitions perspective. We have seen a large tightening of the credit markets and financing has really dried up in the first three quarters of 2009. Our firm remained quite busy, but we have heard that numerous other firms are suffering at this time.
It appears that due to the slow economy, business valuations are down this year. Because of this downturn in business values, some sellers are not placing their businesses on the market and are waiting for business values to increase. With the layoffs in management, there are a large number of buyers in the market. However, because of the lack of available financing, they have not been able to close on deals.
I believe the SBA’s relaxing of the goodwill rules (effective October 1, 2009) will help provide lending on the under $2MM loan size deals. In summary, the sellers tend to be on the market a little longer than they were in the last few years while waiting for a buyer with the proper resources to become available.

Q: Are there any other market conditions worth mentioning?
A: The other market condition we are seeing is a decrease in business valuations due to the overall economy and fear in the marketplace. While a company has, in the past, been able to base its selling price on historical revenues and EBITDA (earnings before interest, taxes, depreciation and amortization), current buyers are not agreeing with those valuation methods due to concerns related to the economy and its effect upon the business.

Q: How are sellers and buyers bridging this potential valuation gap?
A: We are seeing a large increase in performance based pricing using tools such as earnouts, equity ownership or profit sharing in order to try to bridge the valuation gap. Really, this becomes some form of deferred purchase price.

Q: Can you describe an earnout in further detail and provide an example?
A: An earnout is a purchase price component based upon meeting certain milestones. In the past, earnouts were typically used to address the “hockey stick” situation where a seller tells the buyer, “If you do A, B, and C, then your revenues/income will go up and therefore you should pay me more for the company.” The buyers of course asked why the seller had not done A, B, and C in order to increase the value of the business and were unwilling to pay for what the seller perceived as being a higher value for the company. This difference in value was often bridged by creating an “earnout” which provided that if certain parameters (revenue or income goals) were met, the buyer would pay an additional amount of money to the seller. For example, if a company was earning $500,000 per year in EBITDA and there was an agreement the value of the company was $2MM based upon that EBITDA, but the seller wanted an increased sales price due to things the purchaser could do to increase the value of the business, a buyer may agree to pay $2MM plus X% of EBITDA for the next two years, with a cap of $400,000 in earnout payments.

Q: How has the earnout situation changed in today’s environment?
A: In today’s economy, what we are seeing is more of a “reverse hockey stick” where fear is driving valuations. Buyers are unsure that even if a company has a solid five year track record, whether the earnings and profitability will continue in the future. Due to this fear, buyers are less willing to pay full value and are asking sellers to share in the economic risk. Further, this is another way to bridge the financing hurdle if a bank is not willing to lend on a deal. For example, if the buyer in the above example thinks the business is only worth $1.5MM, an earnout could be structured to provide that the buyer will pay an additional $500,000 for the business if EBITDA continues at the same level it was prior to the sale.

Q: Are there any issues with respect to how earnouts are determined?
A: One of the issues that often arises in these types of situations is a discussion as to whether an earnout should be based upon top or bottom line numbers. A seller prefers the earnout to be based on top line numbers, such as revenues. The buyer prefers bottom line numbers such as net income. In practice, this issue can be fairly heavily negotiated and there should be safeguards in the agreement that allow the seller to at least audit the numbers presented by the buyer to verify that the proper amount of earnout is paid to the seller.

Q: What other form(s) of deferred pricing are being negotiated?
A: Seller equity ownership in the new company is another option when a seller is hesitant to give full control to a buyer. Rather than just receiving earnout payments, a seller may require some ownership in the company and a board position in order to exercise some control over the company going forward. A deal may be structured so the seller retains some equity in the old company if the transaction is processed as a stock deal. If it is an asset deal, the seller may take an equity interest in the buyer’s company. Often the buyer may want an option to purchase the seller’s stock at some time. For example, there may be an option which forces the seller to sell its equity interest to the buyer once certain parameters are met; e.g., once seller has received $XXX in dividends, the seller is required to sell the stock back to the buyer. These are just a few ways to bridge the valuation gap.

There are, of course, tax implications to all of these different strategies and it is important to properly structure any type of deferred purchase price or performance pricing parameter.

Q: Do you have any other advice for buyers and sellers in this market?
A: We are still seeing deals getting done. It just takes a little more creativity than in the past and the people who succeed are still the ones who take the time to do things right. I closed a deal a couple weeks ago where I was able to save the client approximately $23,000 in the course of two hours at the closing table. If the client had not hired a deal attorney, this is money that would have been lost. Its important to surround yourself with a good deal team of a broker, attorney, accountant, and others who can help you succeed. This is not like a house closing or a general business contract where most attorneys are able to serve you fairly well.

Markus May backgrounder
Markus May is an attorney with Eckhart Kolak LLC - a boutique business law firm located in the Chicago Loop which provides its clients with high quality legal representation in business areas. Mr. May is a client focused business attorney with knowledge in a broad range of industries. He helps clients with transactions, including mergers and acquisitions and drafting and negotiating contracts, shareholder agreements, leases, and other documents. Markus is a frequent speaker on the legal aspects of buying and selling businesses and other business law related topics. He represents business clients as well as clients who desire to start, buy or sell businesses. Mr. May is a member of the Illinois State Bar Association Corporations, Securities & Business Law Section Council (Vice Chair 2009), the Chicago Bar Association Corporation and Business Law Committee (Chair 2009), the DuPage County Bar Association Business Law Committee, and the Midwest Business Brokers and Intermediaries (Board of Directors 2008 – present). He has published numerous articles on topics related to business sales and the operation of businesses. He can be reached via phone at 312-236-0646 or 630-864-1004 or via e-mail at or