Advice for CEOs

In the previous installment of this article, I explained an important aspect of what happens to companies in No Man’s Land: profitability erodes as the company grows. Operating Leverage is a key indicator you can use to predict when you are entering or exiting No Man’s Land. It is a simple diagnostic tool that highlights whether the fundamentals of your business are eroding or improving.

In Doug Tatum’s book, No Man's Land: Where Growing Companies Fail, he describes a set of symptoms that indicate that a company is in No Man’s Land. Some of these include; working in, instead of on the business; working harder and longer hours but not getting the desired results; managers showing signs of “being over their heads”, with cash tight even if the company is basically profitable. Concerns about meeting payroll and other obligations; losing touch with your customers; quality problems with the products and services you sell; deteriorating service levels and lead times getting longer - all these combine to make you and the organization feel that you are in a state of chaos. These are tell-tale signs that your company is in No Man’s Land.

In the first part of this article, I discussed the importance of due diligence to determine whether a prospective acquiree’s technology will be as valuable going forward as it has been in the past. I would like to present a real world example.

All M&A transactions have a lot in common. The acquirer must perform rigorous due diligence to verify the history and quality of the target company’s earnings, the validity of its assets, the collectability of its Accounts Receivable, the extent of current or potential litigation. Risks--such as customer concentration and threats from competitors—must be carefully considered.