As we’ve already stated, there are many different ways to grow a company beyond an infusion of capital. TCM’s role is to help our clients determine which growth strategy is the right fit for their goals.

Let’s take a quick look at two of the less traditional options.

1. Orchestrated External Growth through Strategic Business Relationships

This is an excellent but underutilized method of growing the value of a private business without necessarily risking capital or giving up an ownership stake. A private company can choose to become proactive in seeking, proposing and creatively structuring strategic business relationships. SBR’s are objective-specific, fully planned, documented and managed relationships between two unrelated operating companies. The goal of any SBR is to offset one company’s weakness with another company’s strength – for mutual gain.

Private business owners should view SBR-driven plans as a very viable choice to drive operating income and shareholder value. Interest in them, however, tends to increase when internal or ‘organic’ growth becomes difficult or when competitive forces on a private operator cause it to enhance its product appeal and profitability – and it does not make sense to hire permanent staff, sub-contract with temporary ‘employees’ or to seek larger outsourcing solutions such as offshore manufacturing.

Strategic business relationships take many forms including:

• Joint ventures
• Strategic alliances
• Collaborations
• Business or line-of-business acquisition
• Licensing/royalty agreements
• Business agreements, including supply agreements, marketing ventures, procurement plans, loan guarantee mechanisms, processing/manufacturing arrangements, management agreements etc.

In the end, the success of any SBR hinges upon the people involved on each side of the agreement, not the written documentation. Key ‘people’ issues that should be addressed early include questions about alignment, top-level support, culture, integrity, credibility and trust. TCM brings the objectivity and business experience needed to help the business owner assess these difficult to measure factors as well as negotiate the final deal.

2. Modifying or Adjusting a Growth Plan or Business Model through an Orchestrated Vetting Process

When private businesses consider the risks and rewards of growth capital, strategic business relationships or exiting the business, there are decisions and valuations to be made before deciding which option is best. It can be very important to understand the feedback from the capital marketplace before pulling the trigger on a specific type of attempted transaction. In general, the more complex and misunderstood a private business model, the less certain an owner (or an outsider) can be about a potential capital or valuation outcome. The list of problems associated with failed outcomes includes:

• Time wasted and disappointment with management, employees, board members, lenders and investors
• Money wasted in paying for wheel spinning
• Owner/senior management frustration when valuation or capital pricing or availability expectations are not met
• Damaging competitive disclosures
• A muddying of the marketplace waters impacting the next attempt
• Deterioration in customer relationships

A regional growth capitalist may be well positioned to help a business avoid these problems by engaging in some subtle “what if” scenarios with a very select and pre-approved marketplace. These conversations can be had without revealing any customer or trade secrets or implying that any specific business is for sale or in need of capital.

TCM has developed a similar solution for our clients. A business development contract is a negotiated written agreement between a young company, its founder(s), its board, its investors and a temporary team of expert collaborators. The agreement has a limited duration and it is explicit in its focus and its intent. Its purpose is to defer the need for cash capital to hire a permanent management infrastructure. The viability of a BDC is dependent upon the local availability of the right kind of experts with the right kind of motivations, i.e. managers, accountants, lawyers, information/communication technology specialists, sales/marketing experts, etc. In addition, these collaborators must be willing to accept compensation in non-traditional forms, such as equity. TCM’s contacts and expertise has identified such people and can bring them together on behalf of our clients.