Pounding the Pavement: Old-Fashioned Legwork is the Way to Gain Expertise
Whether a company is expanding business or has identified an opportunity to diversify into a new market, it must give serious thought to how it can secure the specialized expertise required to succeed in the new venture.
Acquiring the knowledge isn’t necessarily rocket science. Much can be gained by simply pounding the pavement.
“Before you even think of putting a business plan together, you must conduct the due diligence to understand if it is a legitimate opportunity for your company,” says Steve Swiftney, Comerica senior vice president, who has expanded the bank’s presence in the wholesale beverage business an average of 16 percent per year over the past five years. “You must study the industry and try to determine what the need is and how your organization can address that need. That’s the difficult part. If it were easy, everyone would have a solution for it.”
Trade groups, conferences, and publications are valuable sources of industry intelligence. Building one-on-one relationships with industry insiders like analysts, investment bankers, private equity firms, attorneys, accountants, and CPAs can help make sense of industry jargon and illuminate hot topics. Swiftney says he chose to pursue the beverage wholesaling industry after discovering that the segment was significantly “under-banked.”
Studying the Nuances
“There were many wholesalers looking for financing to either expand their brand portfolios or their territory, yet very few banks that were willing to lend to the sector because they didn't understand it and they didn’t know how to protect themselves from a collateral standpoint,” he says. “I spent many hours learning the nuances of the industry.”
By immersing himself in the beverage world, Swiftney was able to understand that a wholesaler’s value is based on its brand portfolio, market share, customer demographics, and spending habits in their respective sales territory, all of which translates into a “blue sky” method of valuation that needs to be understood by a wholesale beverage lender. He also learned how franchise laws differ around the country. For example, while some states require a beverage company to pay a wholesaler if it is dropped, wholesalers in other states can be stripped of distribution rights without compensation. “These are important nuances to understand because they essentially dictate the value of the business,” Swiftney says.
Understanding the Business
Joe Ursuy, Comerica senior vice president and manager of the bank’s Environmental Services Department, took a similar path to learn about the waste management industry.
“I asked everyone about current hot issues,” Ursuy says. “Once I started to triangulate all the data points, I began to understand the business, including how modern landfills treat methane gas and how the waste compacting process is engineered to preserve the life of the landfill. Learning about how a landfill is built and operated was not only interesting, but crucial to understanding the business.”
The portfolio of companies Ursuy received as an entry-level lender in 1999 contained three waste management companies with $75 million in loan commitments. Today, he manages a portfolio of 80 such firms with $1.6 billion in loan commitments.
According to David Shields, executive vice president and chief academic officer at Walsh College in Troy, Mich., companies should keep three themes in mind when building industry expertise in their organizations: culture, champion, and collaboration.
“It’s important that new ideas be greeted with some level of enthusiasm in the organization. The company culture should encourage employees to identify better ways of doing things and be rewarded for these ideas,” Shields says. “While current practices should be honored, they should not be protected from new, better approaches. Messengers should not be shot.”
Midlevel or lower-level employees who are often more attuned to newer technologies can bring great ideas into the organization. However, those new ideas might cause apprehension for more seasoned employees.
“It is critical that good ideas be championed by an upper-level manager with the internal status that allows him or her to protect the incubation of the idea and extend the developed idea to fruition,” Shields says. “Employees should be rewarded not only for good ideas, but for their contributions to the development and implementation of these ideas. Collaborative cross-disciplinary teams are often essential in extending external expertise into the company.”
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This material has been distributed for general educational/informational purposes only, and should not be considered as accounting, tax or legal advice or recommendations by Comerica Bank, its affiliates or subsidiaries.