Thinking about the skills executives need to guide companies through tough times, Brightstar Capital Partners Partner Tom Meredith says chief among them are the abilities to inspire people to do something that they're not otherwise inclined to do — get into a stranger's car, a la Uber, for example — and also motivate that same group to then have the confidence that they'll be safe. As part of that, he says they also need empathy and the ability to communicate in meaningful, inspiring and motivating ways.
He added at the Chicago Smart Business Dealmakers Conference that those in leadership roles also need to understand their company's numbers, and it starts with the cash conversion cycle.
"When I spent two and a half years begging for money, I had shared with Michael Dell, early on, probably the second week of my employment, there are three points on this triangle I want you to think of as growth, which is everything you've been emphasizing for the last eight years of the founding of the company," Meredith says. "There's profitability, and there's liquidity. I want you to shift that pinnacle and have it be liquidity because if you don't, we will be in bankruptcy within two or three weeks — literally two or three weeks. And he was numerate enough and, ultimately, he became the CFO masquerading as the CEO because he was that good with math. And he crisply understood the importance of then having he and I talk with the leadership team about where we are exactly in terms of our liquidity and how critical it was that everybody start focusing on what they could do to affect cash. That saved the company."
Looking at what's happening today to get a sense of how the market might play out, he says there are supply chain issues for a lot of industries, sticky high interest rates that he expects will cause corporate earnings to go down, dragging their cash flows and tightening borrowing. There's also regional banking crises and challenges in real estate to contend with.
"So, anybody that thinks there's not going to be less opportunity to grow your businesses in the near term, unless you're a bank, you will have less opportunity," he says. "It's not a prediction. It's a consequence of all the things I just talked about. And so therefore, you don't have to predict the future, you just have to look around and see what is happening, become very numerate, and then you have to be willing to take timely — meaning early — decisions, which is what most of the major companies that are led by good CEOs, men and women, are already doing. They're essentially taking the bottom 10 percent out without necessarily talking about it. They're actually looking at their cash and saying, 'Well, how can we conserve, because we're going to have great buying opportunities?' They're doing the things that need to be done in advance, not in reaction to."
When it comes to positioning a company to be effective in this market, he says one issue to address is talent to value, which he says is about value alignment. It highlights the challenge CEOs face when delegating talent acquisition or management to HR because there's a sense that they're too divorced from the business to understand what's really needed. However, CEOs can't do it themselves. So, there needs to be better alignment between HR and the senior leadership team, starting with the CEO.
Also, he says business leaders tend to chase inorganic acquisitions in pursuit of growth, because the organic growth opportunities aren't as robust.
"And what we constantly look for is, if we're buying you for eight to 10, and we're able to help you buy companies for three to four, we're instantly accreting your multiple and EBITDA," he says. "And those are gems, and they're out there. And that's why you have to have the cash."
For that, he says it's best to have a partner that has a balance sheet that they can use to grow inorganically.
Lastly, he says organic growth still must be on the table. But how aggressively that's pursued may hinge on the leadership team's incentives.
"And this is where sometimes incentives work too well," Meredith says. "So, too much of a good thing is not necessarily a good thing. And so, if you have a really great incentive program, and you're a private equity firm, or venture capitalist, and you compensate the C-suite leadership team with options, or profit-sharing interest, if they're beating their numbers phenomenally, which happens, they may get to where they're just going to carry this out for the next three or four years. And they'll do really well, except the opportunities are just there, and they're just not hungry enough. So, I'd be very cautious about how you structure the incentive programs."
