Grow Your Business October 2007

Dear Business Leaders,

Welcome to the October edition of the Xenex Group Newsletter. 

You have been sent this as a client or associate of Xenex Group. We have provided an interesting mix of articles on management, leadership and business process, for senior executives and business owners to better manage their people and resources. We hope you like the new layout and find these articles sufficiently stimulating for you to take action within your business.

Best regards, 

Daniel O'Connor.
Consultant Principal.

Getting your Intellectual Property Appraised

This November, Xenex Group are focusing on IP appraisals for Perth-based clients. The assessments will provide a systematic appraisal of the project, the the team, the industry and the market, as well as the capacity of the project to capture, contain and commercialise the IP opportunities. A range of grant funding opportunities are available for IP owners, including R&D grants and export grants. There are also equity placement opportunities through the Australian Small Scale Opportunities Board (ASSOB).

If you have Intellectual property that has commercial application into other geographic and/or demographic markets (other than where you use it for competitive advantage) call Daniel today, for an appointment with our skilled team for a commercialisation appraisal.

 Its Grant Season!

We can always tell when spring is in the air, when our grants division has started to hit top gear. Last year was a record number of clients that went through the grant funding process and this year is shaping up to be even bigger. If you conduct any sort of R&D, we are happy to call out and appraise your R&D activities for eligibility under the AusIndustry Act, which could provide you with a cash payment of up to $375,000 under the R&D Tax Grant and even more (dollar-for-dollar) under the Commercial Ready grant.

 We have grant experts available to appraise your projects in both R&D and exporting, to determine your eligibility. Our fees are based on the grant received, so no-grant – no-fee. Call Daniel today for an obligation-free appointment to discuss your grant funding opportunities.

Multiple Applicants Have Individual Committments

In some programs (other than Subclass 132) Xenex can save you money with multiple applicants for the same business proposal, but the commitments to be made to the State are not shared. Where two or more applicants intend to establish or purchase a business they have multiple obligations for investment, staffing and other issues, under their commitments. However, they can share their turnover in the new business as part of their trading history.

 
Victoria Declines Property Development 163s

We have received notice that the Victorian Government will not sponsor a Subclass 163 for property development, unless it is for an investment greater than $10,000,000. We have one applicant which we have been asked to resubmit an alternative opportunity, in order to be approved. As part of our service, we will re-write this application without charge. However, we are now seeing a benchmark amount being set for these type of projects in various States, which Agents need to be aware of.

 
Do Applicants Need to Advise Changes?

The answer is always yes. The States will not generally penalise an applicant if they arrive and the business they have bid on or intend to buy is gone, or as a result of due diligence the business or industry is not as attractive. However, Applicants must always bear in mind they have an agreement with the sponsoring State that includes an amount to transfer in, an amount to invest into a business, a number of full-time equivalent employees and the intention to be resident in that state for beyond their qualifying period. Most States are understanding about business opportunities, but still want to see an equivalent economic benefit to the State for their sponsorship.

Heart attack, car accident, illness, a resignation, family dispute. Most of these unanticipated, but by no means unusual or uncommon events, fall under ‘The 4Ds’ - Death, Divorce, Disability or Departure. The occurrence of any one of them can instantly throw a business into disarray.

Unpleasant though they are to consider, when one of them befalls the owner of a business that doesn’t have a plan in place for dealing with the fallout, then the result can be more than unpleasant – it can be catastrophic. Disorganisation, loss of business opportunities, loss of customer or market share and a decrease in employee morale and productivity are the least of the repercussions. Family or partner discord, heirs left unprovided for and the demise of the business are real possibilities as well.

When Kenneth Wilson, the owner of Wilson Products Inc. died unexpectedly his three daughters found themselves in charge of his US$12 million aircraft parts business. While all three had grown up around the company they had never been trained to take on the management of the business and no other arrangements to cover a hiatus in personal management by their father had been arranged either. The business was completely vulnerable and, with the aerospace industry also going through rapid change, the business floundered. By 2005 it had to file for bankruptcy. With US$20 million in orders on the books for work through to 2010, theWilson’s couldn't find a buyer, and the company's assets were auctioned.

Where management knowledge about how the business works is restricted to one person the death of that person leaves the business rudderless. Continuity of management can be maintained only if there has been a long term plan for training up family into their eventual managerial responsibilities or using a board of advisors that has had a long term association with the business and can steer it until more permanent arrangements are made.

Death can leave heirs financially unprotected. Will business partners pay the owner’s heirs the value of their interest in the business? Maybe. But not in the case of Terri Gettman. When her father died without any written plan outlining what was to happen to his minority stake in a paper making machinery manufacturing business, it was an opportunity for the other partners to cut the family out of the business without due recompense.

Death entails payment of estate taxes on the value of a business. If they haven’t been planned for it can involve hurriedly trying to raise finance to cover them. But in many instances banks aren’t prepared to come to the party when the business has just lost its major asset – the owner. The business may have to be sold simply to pay its tax liability.

Rarely do you see divorce listed as a cause of business bankruptcy, but with nearly half of all marriages ending in divorce, in circumstances that frequently turn ugly, subsequent litigation has destroyed many privately held businesses. In the absence of any type of divorce planning, such as a buy-sell agreement, all assets may be legally required to be divided 50-50. To come up with the cash to pay their divorce settlement owners have had to sell their business. That may not be the worst part of the story. In a court enforced sale the owner may have to accept a discount price. In one case, with offers from two potential buyers to choose between, the owner was forced to accept the lower bid because it was for cash on the spot. The judge agreed with his ex-wife and her lawyer, who argued that it wasn't fair for her to have to accept whatever financial risk might be attached to the higher bid because, unfortunately, it had provisions for an extended payout.

Disability and departure are equally problematic for the survival of a business that hasn’t developed a contingency plan to handle them. Partners can decide to leave for a number of reasons. They may decide to leave for another opportunity or simply to take life easier. But the same issues remain. Who is going to do the work? What is owed the leaving partner? Where is the money coming from? Both disability and departure can bring huge financial and emotional pressures in their train.

Planning for the 4Ds

Emotionally charged as it may be to contemplate the 4Ds, planning for them should be an integral part of overall business and personal financial planning for business owners.

The last thing you want to happen is to be forced to sell your business in a hurry because of unforeseen circumstances or to leave the business in a dire position when you die. Failing to consider unpleasant circumstances or to plan for dealing with their consequences is a sure way to put the future of the business and the welfare of the family stakeholders at risk. An estate plan, a buy-sell agreement, a succession plan, a pre-nuptial agreement can each feed into an overall transition plan that protects the business and its dependents in the eventuality of one of the 4Ds occurring to the owner.

The key to avoiding difficult situations arising from the 4Ds is to start succession planning as early as possible, revisiting the plans on a regular basis and dealing with ownership and management issues separately.

Your top salesperson has just resigned to start their own business. Next you hear she’s been in contact with the customers she dealt with when she worked for you – your customers! And the next you know some of those customers are switching to her firm.

The danger presented by ex-employees extends further than the possibility that they might hijack your customers. They can take knowledge of your proprietary processes and other trade secrets to use on their own behalf or that of their next employer. That means your competitive edge may walk out the door with them.

A non-compete agreement (NCA) is a way of protecting your business’ competitive edge by preventing employees from using your proprietary information against you when they leave you. Any employee likely to come in contact with valuable business knowledge should be required to sign a non-compete agreement.

Developing a legally defensible NCA

NCAs are court enforceable only when they are constructed properly. An NCA is likely to be most defensible in court when it conforms to generally accepted practice. This involves writing it up so that it defines limitations that apply to an ex-employee using the information they have about your business that can be considered both fair and specific.

 To be fair and specific an NCA should cover off three areas in particular and place reasonable limitations around each:

• Scope,
• Time and
• Geographical area

Scope refers to the items that are covered by the non-compete agreement. While many things can be protected including procedures, techniques and client or customer lists, a court will need to be convinced it is in fact something vital to the operation of your business. You must be careful about defining the scope and demonstrate by other measures that you consider the item is important - mark documents that include the information ‘confidential’, lock them up, put a computer access password on them, limit the number of people who have access to them. Courts won't prevent employees from using information that isn't proprietary or treated as confidential by the business itself.

An NCA can’t be applied for an indefinite time but deciding what sort of time limit a court will find reasonable can be an interesting exercise. Try to work out some logical relationship between the information you wish to protect and the enforcement period you apply in the NCA.  In the case of employees who are in a position to develop close relationships with customers the danger of them poaching is significant so the employer, who is considered to own that relationship, should protect it with a non-compete agreement. However, the non-compete period that can be applied is not likely to be legally binding beyond the time it would reasonably take to get a new employee up and running and with their own track record so that a customer wouldn’t see any difference between the new person and the old one. It’s a mistake to impose time restrictions which have no basis in how long the item being protected will remain valuable.

A non-compete agreement may also need to cover a geographical area such as your sales territory or distribution network. Again, care is needed in defining the extent of your restriction in terms of business logic. Usually it must conform to the area in which you operate. Courts won't agree with a geographic prohibition that is broader than necessary.

Fairness to the employee

Courts are more likely to accept your right to impose an NCA when it can be demonstrated that the employee knew they were subject to one and had openly agreed to abide by its terms. The fact that they will be subject to an NCA should be mentioned as early as interview time to job applicants and they should be provided with a copy to review before they accept an offer of hire.  The same applies to current employees being offered a move that puts them in contact with protected information and requires them to sign an NCA. Give them a chance to consult legal counsel and ask you questions about it.

Take legal advice

An NCA can be a valuable weapon in defending your competitive edge but it has to be drafted according to law.

Courts in general try to balance your right to protect your trade secrets with the employee's right to make a living. While some cases are quite clear cut – for example an employee you trained in general laboratory techniques can get a job as a lab technician elsewhere but they can’t use your patented formulas – others are not.

When it comes to NCAs the advice and assistance of a registered lawyer is a must in drafting a defensible form of agreement.

Many business owners are reluctant to respond to an advertised request for proposal (RFP) or to write up and send off unsolicited proposals even though a successful bid could mean good business. Their reluctance may be strategy based – if we win this will it overstretch us and drain our cash and time resources? But sometimes it arises from the simple feeling that “I don’t think I have the skill to write up a proposal”. Here’s 6 tips on how to go about writing a proposal that will make it easy for the recipient to grasp what you offer and decide if it’s for them or not.

• Cover the basics the recipient will want to know: A proposal must include clear statements on WHAT you are proposing, on HOW you plan to do it, on WHEN you plan to do it, and on HOW MUCH it is going to cost. After you have written your proposal check back and ensure they are all there and easily identifiable by the recipient.
• Make the title count: Use the title to sell your solution by showing how it answers to the real needs of the recipient – ‘Vandal Proof Letterboxes For Public Housing Estate’. That may take some reading between the lines – RFPs are likely to stress features whereas you need to point out the benefits.
• Include an abstract of your solution: An abstract is a condensed version of the whole response placed at the beginning of the proposal. It summarizes the content and highlights the major points you want to make. Your proposal may be one among many so getting the reader’s attention early is critical. A good abstract that has no superfluous information but briefly covers the What, How, When and How Much can get your response on the short list for later detailed attention.
• Present information logically/highlight the important points: Proposals need to be both informative and persuasive. The best way to persuade someone is to present a logically built up case that amounts to demonstrating why yours is the best solution. Arrange the pieces of evidence so that the most important are at the beginning and work down to the least important. Bullet points, boldface type, and coloured font can all be used to highlight the most important information so that even in skimming the document these parts stand out. Charts, tables, graphs and illustrations make hard to grasp details easier to comprehend and replace paragraphs of text.
• Write for the audience: A winning business proposal is all about communication. Every industry has its own particular jargon. The words, terms and expressions used by engineers are different to those used in the medical profession. The proposal needs to use the terms that will be understood by the particular audience.
• Make it look professional: Your proposal should look like a serious document. Design a title page that includes all the relevant information (title of the proposal, the firm it is for, your company name and address, the date, and your copyright symbol) and also a relevant image of some sort. Have it printed on good quality paper by laser printer and bound in some way. The whole job can be done cheaply and professionally by a print shop.

“There is only one boss. The customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else” - Sam Walton

Be sure to read each article with the mindset "How could this apply to our business." Thinking of it that way will guarantee that you get value. Better yet, take notes as you read and commit to having the ideas implemented by the time the next edition arrives. Also, make copies for each team member. To really make sure something positive happens, work with your Xenex business development specialist to talk your team through the ideas and how to set a schedule for getting them implemented. We're here to help you get started.

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.