When you take the CEO position of the business you purchase, you are likely to find inadequate and antiquated IT systems supporting the business. After all, you have purchased a “good” business and a “great” business would already have outstanding systems. (See Blog Post: Company Profile). Most sellers neglect their IT systems because they don’t have time, under-estimate the business model significance, or are technically risk averse.
Your competitors are likely to be very much like the seller, wrongly thinking that they are not big enough to worry about getting IT systems “right and scale-able”. My experience suggests that moving your internal systems to the “leading edge” can deliver a significant competitive advantage. Your personal leadership will be crucial as you face resistance to change from your employees, vendors and even customers who are comfortable with the “old ways”. IT systems are an essential part of your business model.
What you may find in the business you acquire
The size of the business and how it was scaled before your ownership will make a big difference. Mark Anderegg, CEO at Little Sprouts with over a dozen locations, found a relatively stable situation, but says “I decided to upgrade to Microsoft Dynamics (Great Plains) with an add-on of Adaptive Insights for budgeting. We also transitioned away from Salesforce.com to an industry-specific CRM and built a home-grown labor management application. This IT upgrade was critical to our early growth “.
On the smaller end of the spectrum, at Seabreeze Property Services, searcher Trish Higgins and her partners had to start from scratch with training employees on the basics of email and replacing a slow “dial-up speed” internet connection.
Stepping in as CEO in a legal services business, another searcher observed that the old ownership had cut corners with both IT hardware and software and missed an opportunity to improve profitability, explaining “The seller had achieved a false economy by under-investing in network hardware. As a result, very expensive employees were spending a lot of time sitting around waiting for slow machines to do things. Early on, we recognized that upgraded IT hardware is much cheaper than labor hours, so investing in that area can pay for itself quickly.”
Searchers who purchased a manufacturing business found “The IT system was very old school – most PCs were at least 3 to 4 years old and all the software was unlicensed (including Microsoft Office). The Network internet connection was also poor. We upgraded the Sage accounting systems, which was quite a large overhaul, introduced the Highrise CRM system and now save all our files on Dropbox.”
Each business is unique, and not all will respond to technology investments. Doren Spinner when CEO at Acken Signs reviewed their systems and concluded: “If we switched, we would just be ‘paying for pretty’. However, we did pull the accounting out of the Stone Age and started using QuickBooks with a relatively painless monthly data transfer out of our ERP for inventory. But we let the old software keep chugging along and got back to focusing on stuff customers were willing to pay for!”
On the other hand, Paul Thomson at Scottish American says “IT systems are a great opportunity to re-build your business model and attract top talent. The significant impact of the cloud meant that building our own solution was possible, but it took twice as long and cost twice as much as we thought. Not a good strategy if you are looking to flip your business in the short-term. It also firmly puts technology at the heart of your business, which means you have to cut significant people costs elsewhere to be competitive on margin.”
Where to find resources
As SAAS becomes more ubiquitous, the SME market has become more attractive for software and hardware suppliers. These vendors can assess your needs and provide valuable education. Since this may represent a decade-long investment before you are done, it pays to review as many as a half-dozen proposals in depth before making a decision. Andrew Mondi, CEO at American Color Labs, reviewed a number of industry-specific vendors before selecting Cyrious, a Digital Signage Software package for his large-format printing business, that integrated order processing with their CRM system.
Specific vendors may target your industry. Be cautious about where they are in their own development cycle, you cannot afford to lead them into a new area and be on the “bleeding edge” of their technology. Specifically, you want the ability to “tailor” their system to fit your needs; avoiding expensive customization. The IT system interface like input screens, customer documents and your unique terms and vocabulary should match your business not their standard “package”. Avoid server-centric systems that are costly to upgrade in favor of cloud-based software that provides regular updates to their base system.
The trade association you belong to will generally have groups that focus on industry-specific solutions. Solicit input from your customers to learn what your competitors are doing well or poorly. Quiz your vendors on trends and their future plans for system enhancements to get a sense for features that could give you a competitive edge.
Resist the urge to delegate
Depending on your own background and personal comfort with technology, you may feel that someone else is better equipped to make decisions about your computer systems, but this could become a significant missed opportunity. As one searcher says, “Don’t let employees make significant technology investment decisions for you. You may need someone who understands the technology well and can review proposed solutions, but the CEO should understand the issues and make the final decision. Employees will have a very hard time making the trade-off between money and technology.”
Another searcher explained, “We used an implementation consultant for salesforce.com and I’d highly recommend doing as much for a high priority system of record. For other applications though (less mission-critical, less feature-rich, fewer configuration options, etc.), doing it internally is much more effective and efficient.”
Mark Anderegg points out, “Make sure you have the appropriate internal personnel to manage the various platforms. We are in a low-tech business, but we outsourced IT management for too long. Vendors typically handled implementation of the systems, but the trickier part is end-user utilization, which is now led by our Operations staff. We did more tinkering around the edges because, thankfully, wholesale improvements were unnecessary.”
I would disagree with one CEO who expressed, “I do think there is value in getting comfortable with certain systems that are of high importance to your company (for example, salesforce.com houses the main sales dashboard that I access on a near daily basis), but I’m not sure you need to get as intimately familiar with the systems as I did.” Perhaps five years from now, he have changed his mind.
In my own case, I had a background in coding and was very comfortable getting “under the hood” and tweaking the systems to deliver efficient and timely information to our team, customers and vendors. It may be a stretch to recommend that every searcher learn to code, but detailed engagement is important. As a searcher/CEO pointed out, “I initially felt that I did not have sufficient knowledge of the systems and technology to do anything other than go with the recommendations of my IT experts. Now I recognize that I have to be involved, so I ask them questions for as long as it takes until I know enough to make an informed decision.”
Sending signals to your organization
As with any change, be prepared for resistance. For something with as far-reaching impact, you want to demonstrate your own personal level of commitment. Andrew Mondi observed that his direct involvement was critical to implementation success, “I’ve been very hands-on with these IT projects…you can’t underestimate the organization’s resistance to changing their current ways of doing things. I still am personally managing the business process side of the changeover (i.e. when we turn functions on, when we stop legacy processes etc.). I think this is really important because when the employees have resisted changing things I can respond with credibility.”
Trish Higgins saw the value in modeling behavior for their team, “At this point we know the most about the system and view it as our role to educate and engage with employees/key stake holders to have the system adopted. We realized that we had to own the system and fully understand if it we wanted our employees/key managers to do the same.”
Finally, a European based searcher/CEO sees a significant an impact on the organization, “I’ve been very hands-on largely because we don’t want to have to spend the money on an external person coming in every time there’s an issue. So far, thankfully, most of the issues have been fixable but do take up a lot of my time whenever they arise. However, this has allowed me to get much closer to our employees and alleviated their reluctance to embrace change.”
Mistakes to avoid
Many small businesses have bootlegged copies of software that may be discovered during due diligence and you will want to set a new “ethical” tone going forward. While generally not a strong negotiating point, becoming “legal” should certainly factored into your “go forward” cash flow forecasts. Keep rigorous track of your “software seats and licenses”. Use a shared workstation when you can’t justify dedicating a single license for someone with very low utilization.
Avoid the “install and forget” mindset so common with IT systems by developing a routine of regularly assessing your systems for improvements and error reduction. Utilization of keystroke expanders for frequently used terms or bar code scanners at work stations for common commands will reduce “typing” errors and improve efficiency. One best practice, is to appoint a ‘guru’ who maintains these simple systems and provides regular training and monitoring of compliance throughout the company.
It is important to spend the time up front both on assessing your needs but also planning implementation. A Canadian CEO explained, “Measure twice and cut once: The nature of many of these systems (particularly sales CRM’s) is that once set up and utilized, it’s difficult to make structural changes to them, especially after you’ve started to move up the user adoption curve. Therefore, there is a lot of value is setting up the system correctly as opposed to simply diving right in because inevitably you’ll make mistakes, and these will be harder to undo later on.”
As CEO, you may be the only one to care about security – you can’t afford to have hackers breach your systems, no matter what the size of your company. Developing password protocols, preventing “rouge” software installation, establishing firewalls and conducting frequent training on avoiding phishing schemes and highlighting the risk of downloading files to local platforms all set the tone for protecting the business from external threats.
Don’t ignore best IT practices that others are using. After seeing another manufacturing business utilizing as many as 4 monitors at each desk, I ignored the protests from our accounts payable clerk that it was a “frivolous waste of money”. Instead, I insisted she try a second monitor and two months later, she claimed that her efficiency had improved dramatically and was asking for a 4th screen at her desk!
Tyler Hogan at PureFlow says: “We installed Pipedrive for CRM and deal tracking and used Squarespace for the website. It was very difficult to get our organization to actually use the new CRM. Their old system of just using post-it notes is still more comfortable for many of the employees, after all, they have been doing it that way for 10+ years and habits are hard to change. Our biggest lesson was to design systems to be as user-friendly as possible; having less forms, fewer procedures and less complexity. Our goal is to make tools that are more convenient than pen and paper. It has almost certainly paid for itself.”
In the time during search that you have a business under LOI, you will want to be vigilant about the plans underway at the company in the IT area, slowing things down until you have time to assess and engage in the the process after closing. You don’t want to miss the opportunity to be involved in what can make the business “great” under your CEO leadership.
Jamie Dimon, CEO of JP Morgan Chase, says: “There is nothing mystical about systems! Business people need to be systems literate”. I feel this sentiment applies to both the largest bank in the United States and to any business a searcher may acquire. The operational component of your business model and strategy has to include your IT systems and your personal engagement will impact how effectively they are implemented.
Feel free to share some of your own best practices or experiences in dealing with these issues in the blog comments. I encourage comments and dialog, allowing all to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! I frequently update individual blog posts, add to the Reference section and Search tips, so visit the www.jimsteinsharpe.com website regularly.