Forensic Business
by Margaret Heffernan

A few years ago, I became a board member of a private company. I knew the industry in which it operated well. That meant I knew the economics of the industry very well. And I knew the founder pretty well. Or I thought I did.

In the last few months, the company has had conversations about potential investment in the business or an outright acquisition. Those talks have forced the management to write a business plan for the very first time. And I am just beginning to learn that I don't know this company at all.

I've started looking in detail at the market I thought I knew so well. In broad terms, my updates have merely confirmed what I knew. Except – that my company's competitors are doing well. Really well. While I always believed the economics of the industry to be lousy, there are people out there making it work for them. And they're winning business, customers and awards doing so. The hard graft, which I assumed was just a market prerequisite, isn't inevitable. Others have found their way around it.

Still, it has been in business for twenty five years. That's no mean feat. But there is no member of the management team that has been there for more than four years. What happened to all the others that must have made their way through the company? Where did they go? We've started drawing up a list of major milestones and achievements. They are all in the last four years – or in the first four years. That means there is about a fifteen year haitus where (apparently) very little happened. So what was happening?

Perhaps what is most worrying is that as I ask all the standard questions required by a business plan – market data, proof of track record, proof of achievements – it is so hard to get the information. This company has no folk wisdom. No one has been there long enough to know it truly, madly, deeply. I get very worried when there's no folk wisdom about the place. This kind of knowledge is the fabric of a company from which myths and reputation derive. It's what attracts talent and keeps it working hard, through thick and thin. If nobody remembers past moments of glory, it is hard to achieve future ones.

So what lessons do I take from the whole exercise? Probably the first – and most unpopular one – is that business plans are good. When I ran companies, I did one every year. They often became obsolete almost as soon as I'd written them but they proved an excellent mental discipline. If I knew what the plan was, the chances were everyone else did. And if they didn't – I could show it to them. Most of all, writing the plan forced me to go through the catechism of hard questions that every business must confront: what is the size and value of your market? Is it growing, shrinking or moving? What about your competition – are they doing more or less business than you? If more – how do they do that? What are their margins like and how can they achieve them? You may say you compete with private companies and can't find this information – but there's always a public business out there that you can compare yourself too. It is a bracing experience.

Who in your company can write its history? What does the five year financial history look like? This is your report card – how are you doing? What does your staff retention look like? And how many people in your senior management team could write your business plan better than you? It had better be a number bigger than zero or you're struggling.

Does this sound tough? Well, it is. What I've discovered, in my forensic study of this company, is that, time and time again, it's had great opportunities – and failed to capitalize on them. This is a business that never captured momentum. It's lurched from highs to lows, to good teams and bad teams. It has no core competence – except perhaps its ability to bear pain. But pain is a signal. It tells you to pay attention. When I examine the twenty-five year history of this business, attention has not been paid.

Do I regret the time I've given it? Maybe. If we can complete the acquisition, I may feel better, feel that at least, as a board, we've landed it on a safe shore. I hope we can do that. I want the employees, this time round, to get a good deal and discover they've joined something that can last. The hard work they've put in over the last four years deserves that. Their current management can't give it to them. So I have to hope the future one can.

© Margaret Heffernan

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