Stephen Cohen

Here are some key questions that business owners will need to consider as they contemplate the decision to sell their business or set sail for new waters.

Growing Talent Management Firms: Exit Strategies

In previous posts, I outlined the necessary ingredients for successfully growing talent management firms:Financial healthValue creationSpecial sauceStrong managementBusiness development engineScalability.But what is the opposite of this formula? What is likely to happen if these ingredients are not included in both strategic and execution plans? Let’s call it a “recipe for failure.”One can certainly argue that the absence of any one of these ingredients is likely to make it more difficult for any talent management firm to succeed. But what else can impede success? A couple of things quickly come to mind.The “One Trick Pony”Relying on one product or service, while not necessarily a doomsday scenario, is a leading indicator for slow growth. At the very least, there will be a ceiling that is very difficult to achieve.Certainly, many firms are known for—and, in fact, built on—a single training product, software program, assessment inventory, or unique business service. But few, if any, have shown sustained growth without expanding their offering—even if that means creating off-shoots of their foundational program.It is true that once a client has bought and used that offering, it will likely look for the next product or service from that same company, especially if they had a positive experience. Since we also know that the cost of obtaining business from a current customer is significantly less than finding a new one, it clearly behooves a supplier to continue to up-sell (and cross-sell) with new products and services.The Guru or Heroic FounderAnother issue derives from a firm started by a guru who becomes the heroic founder that has long since reached his peak leadership performance capability or interest. Although the Peter Principle is alive and well, it is too often demonstrated in a relatively technical field, where the scientist/researcher/author has little to no competence in running and growing a sustainable business.Indeed, the very traits and capabilities resident in the entrepreneur founder are often those that get in the way of growing the business over the long haul. If the heroic founder can’t step away when it becomes evident his management competence has peaked, the die is cast—and the firm is sure to fail.As you can guess, these organizations are ripe for take over. And what is the very first action of the acquiring company? You guessed it: Replace the founder who, admittedly, is not up to the task of growing the business.The Next Best ThingThe third issue, which is very much related to the heroic founder problem, is that the leader tends to continually look for the “next best thing.” Never satisfied with simply improving what the firm has already created, the leader prefers to create what hasn’t yet been discovered. It is their entrepreneurial nature to chase bright shiny objects, and often many objects at once.This lack of focus not only causes chaos among the organization’s workforce, but it also leads to an organization that pays little attention to what was the original product or service that lifted the company off the ground. As a result, the business becomes stale, it doesn’t keep pace with new customer needs, and it becomes vulnerable to competitive sniping.The Cobbler’s ChildrenAs the parable goes, the cobbler’s children often have no shoes. Similarly, talent management firms often ignore the talent management needs of their workers.As organizations grow, they become increasingly dependent on the quality of the talent they acquire, develop, and hopefully retain. Meanwhile, the founders are either on to something bigger and better in their minds (The Next Best Thing failure), or they are no longer with the firm (The Guru or Heroic Founder failure). The irony of ironies is that a sure-fire recipe for failure is to ignore the talent management demands of its own talent management business.No doubt, there are numerous other ingredients for failure among talent management firms—many of which aren’t unique to this industry. However, these four issues are likely to be fatal. What others have you observed or experienced?

Growing Talent Management Firms: A Recipe for Failure

The holy grail of most businesses is how to achieve scalability. In theory, scaling a business means eliminating costs and time to produce and distribute products and services, resulting in greater margins and more profitability. The basic underlying proposition of scaling the business is relatively simple: create replicable processes that take less time and labor to produce results. This is as true in the talent management industry as in any other.But if scalability is this simple, why aren’t all firms hugely profitable?The simple answer: implementation is not as easy as it sounds, especially if it involves re-engineering processes that are embedded in how the organization operates and goes to market. Just as it is easier and less expensive to sell to an existing client versus a new prospect, it seems much easier and less costly to stay with the status quo than to remake one’s business model—even if the latter can result in overall improved business.There are at least three overall functions in the talent management industry in which scalability is feasible:development of the offeroperations of the businessdistribution of products and services.Offer DevelopmentOne of the most important and consuming activities for any organization is developing its deliverables. In talent management firms, this could mean actual products or consulting services. More importantly, determining the deliverables defines how an organization goes to market.Indeed, creating the intellectual capital and effectively packaging it takes time. But once the “offer” is developed, how can the organization scale it—create a readily replicable product or service that doesn’t need to be retooled every time it is sold?For the product category, this is relatively easy to understand. To see examples in the talent management industry, simply look at the myriad of “off-the-shelf” generic programs on the market, whether it is a training workshop, assessment instrument, or software application. One of the most well-known examples of this is a learning management system (LMS) platform, which supports the ready use of plug-and-play learning modules. The LMS stays the same while the products can differ in content and design.Another way to scale the development of off-the-shelf programs is with a mass customization design. Mass customization is a common scaling technique used by many businesses, in which the core offer accounts for some 80 percent of the needs of the target market, and the remaining 20 percent allows for tailoring or customizing the offering to the specific needs of buyers.My favorite example of mass customization is Hertz. If you have every rented a car from them, you may have thought that the car assigned to you was specifically customized for you. Why? Because when you approach the electronic reservation board, it has your name and parking space number in lights. All you have to do is go to that spot, where typically the car is already running so you can exit in no time. Even that exiting process has been scaled to take the minimum amout of time and hassle before getting you on your way.In the talent management industry, mass customization examples run from a training program that simply adds a client’s branding to those that add custom role plays and case studies. Alternatively, mass customization of workshops may not involve tailoring the pre-packaged materials, but rather creating a facilitative experience that meets the unique needs of the client and end-users.The same can be said for online learning programs created with off-the-shelf authoring tools that cut time and costs out of the product development cycle. Often, a minimal number of screens can be tailored to make the end product look like it was developed specifically for each customer. For example, a firm that provides police, fire, and correctional institutions via a training platform is easily updated with specific state and federal policies and regulations, while 80 percent of the content remains essentially the same.Consulting services also can benefit from a mass customization business model. For example, there are many strategic planning processes and organizational change models that use simple templates. But these templates are easily customized when completed with the unique information and insight of each client. In other words, the process or model is continuously replicated and fits any set of customer data.DistributionDistribution of products and services is a paramount scaling opportunity for any business—as the advantage is to get to market faster and more effectively than competitors. There are, of course, multiple selling models. In fact, one could argue that the more sales people in the field, the more scaled the business becomes.But is that supposition really true, especially given the cost of direct sales and the time it takes to get a salesperson up to speed? And what about getting the right person in the first place?Granted, some products and services require a time-consuming, face-to-face sales model—particularly when in-field sales people must locate the right buyer, define the appropriate need, and then match that need to the prevailing offer. As a result of this labor-intensive and expensive sales model, many firms appreciate a more scalable way to create (or farm out) the lead-generation capability. In this scenario, “lead hunters” provide already qualified leads at significantly less cost than “feet- on-the-street farmers” who sell, follow-up, and hopefully develop long-term relationships with clients.Other ways to scale sales and marketing efforts include the creation of pricing and proposal templates, using direct e-mail and webinar opportunities to reach out to prospective clients, and setting up reseller arrangements with domestic and international partners. These partners could range from inserting your offer (or components of it) into widely distributed catalogs to licensing arrangements with international distributors.One good example of how a business has scaled its distribution involves eliminating its direct sales force. Instead, the company provides its assessment inventory to some 2,000+ worldwide distributors to market and sell their offering. To be sure, the firm provides consistent support to all these distributors, including some global marketing activities, but the firm itself does not directly sell the inventory to any end-user organizations.OperationsI’m sure I don’t have to detail the myriad scalability opportunities organizations can undertake to remove time and costs from how their businesses operate—from the use of technology to integration of internal services.For many businesses, the most logical scalability option is structuring more efficient and straightforward internal processes, whether they employ technology platforms, human resources applications, or back office finance and accounting utilities. Some popular examples include time sheets for recording labor efforts expended on projects, sales reporting tools, and CRM platforms.My favorite operations scaling opportunities focus on project management. I have found that any process that can be reasonably eliminated from project management procedures will benefit in greater margins. One option is to develop a repeatable project management process, with accompanying tools, that enable fast and lean production—rather than reinventing the wheel every time a new idea surfaces. This process needs to be applicable to small internal operational projects, as well as the development of any product or service offerings mentioned above.Bottom LineCertainly, there is a multitude of ways to scale a talent management business—only a few of which are noted above. The bigger question is what can your organization do more effectively to scale its three key business areas: offer development, distribution, and operations? More importantly, what scaling examples do you already use in your business? Finally, have you been able to quantify the improved results your business has achieved through scalability?

Stephen Cohen

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