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The Next Level: When a Fast-Growth Entrepreneur is Too Fast for His Own Company

January 23, 2013 by Leave a Comment
The Next Level

Avoiding the pitfalls of fast growth.

“They will carry him out of the company in a body bag” is the first thing I ever heard about David Deeter. I had asked about him because the accounting firm that carries his name, Frazier Deeter, is one of the fastest-growing firms in America and yet he works in the tax department. It didn’t add up.

Mr. Deeter had previously served as managing partner, and during that time Accounting Today had named Frazier Deeter one of the best firms to work for in the United States. It had been growing about 25 percent a year for seven consecutive years, reaching more than 250 employees in 2010 (it is also a sponsor of my organization, the Oxford Center for Entrepreneurship). And now, with new offices in Nashville and Philadelphia, the firm is poised to go national but the guy who founded and ran the firm for eight years is no longer leading the charge. Was that his choice? It turns out it was not. David Deeter, the founder, got bounced down the organization chart.

But, wait a minute. Everybody you talk to says Mr. Deeter always put his heart and soul into the firm, that he did the almost-impossible by taking it from two accountants to more than 200, and that he loved every minute of it and was ready for more. But his company said no. In reality, this happens fairly often to entrepreneurs like David Deeter who push and pull their companies through high-stakes growth pains. Why? Because the employees, partners and leaders get tired of them. Sooner or later they all want to get off the roller-coaster and find stable ground.

To go from 50 to more than 200 employees, you probably have to bet the company a couple of times, and that scares the daylights out of people. You also have to wear some of them out with a series of jobs and titles. One month you have too many people and the next you don’t have enough. Employees get scared, but you, the entrepreneur, keep their heads in the clouds and you keep thinking, boy, isn’t this great? Why? Because you are having the time of your life.

Inevitably, you anger some people. By the time you get to 200, you have fired the brilliant jerk, been unrelenting in staying true to your vision and told some original team members that they do not have what it takes to continue in leadership. You have been at best a benevolent dictator, and this is where Mr. Deeter made his mistake. He consented to a partnership agreement that gave him two four-year terms as managing partner. With the company flying high, he asked the partners to amend the agreement and renew his contract.

I always tell people that a fast-growth company is no place for democracy. What was the decision? It wasn’t even put up for a vote, but if it had been, the final tally probably would have been 16 against and zero for. Was he surprised? Yes, totally. “We were doing so well,” he said.

Mr. Deeter is not like the accidental chief executive who would just as soon have a lesser role. He is a successful, positive opportunist who has all the entrepreneurial instincts to turn a market on its head and then be the market leader. Scarcity of resources does not scare him — it motivates him. He is smooth and polite, but a natural rebel. “When I go to these industry seminars,” he told me, “they teach it all exactly wrong — how you should build an accounting business. They think you do it from the inside. No, you have to be out there market-facing.” Market-facing means a lot to Mr. Deeter. It means client satisfaction and client innovation, but it also means sales — getting the business. At some accounting firms, sales is a dirty word. David Deeter is different.

When the larger firms wanted to buy Frazier Deeter, he would say, “By the end of the deal, you all will want to work here — it is so much better. We make more money and do more things.” Of course, that’s not what you say if you really want to be bought — you want to pump up the big egos not splatter them — but Mr. Deeter had no intention of being bought. He wanted to win.

He thinks big, and he gets you to think big. The problem with that is you can also lose big and even look like a fool. It scares employees and partners, even when things turn out well. Why? Because they now have something bigger to lose. I remember an employee telling me once, “Cliff, I just took out a larger home mortgage and I want to make sure we stay around. When will you stop hiring?” Another time, my chief operating officer asked me, “Why do this? Why go into Hong Kong? Let’s just sell and go home.”

Smart entrepreneurs come to understand this. We want to take over the world and prove everyone wrong, but employees want stability and a good job where they can live a good life. They like the upside of growth but they become more risk-averse as the company gets bigger.

And I think this is what happened to David Deeter. When I asked Mr. Deeter’s replacement as managing partner, Seth McDaniel, what happened, he said, “Look, David did a great job and I have a lot of respect for him, but the 16 partners thought it was the right decision for the company to make a change.”

When I asked Mr. Deeter how he reacted to the vote, he said, “It hurt my feelings that day, but even worse when I had to go to the first company pep talk and see somebody else on stage. I understand it more now as Seth was a rising star with a huge following. He is well liked. He makes people feel comfortable.”

I think fast-growth entrepreneurs can learn some valuable lessons from this episode. First, don’t get carried away with the rock-star mentality of thinking they all love you and will always listen to your songs. No, employees watch every move you make, and they question how it can affect them. They will give you their time and talents, but they do not want you to gamble away what they have earned for their families.

Second, even in the age of Twitter and Facebook, you still have to have frequent town hall meetings with the whole company in attendance. Employees do not like unexplained surprises or trying to guess what your plan is. Remember, there will always be people telling them that you are crazy.

Third, one of Stephen R. Covey’s seven habits of effective people applies especially to entrepreneurs, and it is a big one: “Begin with an end in mind.” And tell people about it. Don’t let them think that you are making it up as you go. Let your people give you feedback, and let them disagree. You can make the final decisions, but you have to listen. Show them you can be both an entrepreneur and a chief executive. How? Let the employees see that you put the company’s interests ahead of your ego and your own personal interests. Otherwise, the real talent will leave — or boot you out, which is what happened to Mr. Deeter.

The final part of this high-growth drama is how Mr. Deeter and Mr. McDaniel are doing. And the answer is, all things considered, not bad. Mr. Deeter estimates that he used to spend about 70 percent of his time with clients when he was managing partner. Today, he spends about 80 percent of his time with clients and uses the other time to have a “more integrated life,” as he calls it.

“No doubt I fell back on my Christian faith to humble me for all this,” he said. “I woke up one morning, and my wife asked what was wrong. I said, We have given our life to this company, haven’t we? She said, sure, you have. In some ways now, I am relieved about the change. Seth and I have learned to work together, and that means I don’t get involved as much. Don’t take that as a negative. We’re friends. Heck, Seth and I are even texting back and forth now.”

Mr. McDaniel is a consummate professional but without the big ego. “I like David,” he told me, “and I just listen when he comes to my office and tells me what he is good at and what I am not good at” — he was joking, with a big smile — “but he has even stopped doing that now. I consider David not only a partner but a friend.”

With 40 new people this year, Frazier Deeter is still growing, but it still has growing pains. It recently had an urgent information technology issue, and Mr. McDaniel did not go home until it was fixed at 1 a.m. in the morning. “Seth was on it,” Mr. Deeter told me. “Maybe, we did need Seth. I.T. and operations make my eyes glaze over. I have to be out there.”

Cliff Oxford is the founder of the Oxford Center for Entrepreneurs.

Article source: http://boss.blogs.nytimes.com/2013/01/22/when-a-fast-growth-entrepreneur-is-too-fast-for-his-own-company/?partner=rss&emc=rss

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The Next Crisis for German Banks — Shipping

December 4, 2012 by Leave a Comment

FRANKFURT — For all the talk about Germany’s financial exposure to Greece, it turns out that some German banks have a problem of more titanic proportions — their vulnerability to the global shipping trade.

Germany’s 10 largest banks have €98 billion, or $128 billion, in outstanding credit or other risks related to the global shipping industry, according to Moody’s Investors Service. That is more than double the value of their holdings of government debt from Greece, Ireland, Italy, Portugal and Spain. And it is more than any other country’s financial exposure to the shipping industry, which is in the fifth year of a recession.

Moreover, German banks bear a generous share of the blame for spawning that recession. By helping to finance and market funds used to build and purchase ships, a popular tax shelter, the banks helped create a glut in large container ships that has led to a collapse in cargo hauling prices worldwide.

Germans grumble chronically about having to pay for Greece’s bad debts, and German policy makers style themselves as guardians of fiscal prudence. But the shipping-related crisis, and the threat it poses to the German economy from billions of euros in bad loans and losses at shipping-related companies, is a reminder that German banks and political leaders also have plenty to answer for.

Shipping’s recession has been overshadowed by the euro zone debt crisis, but it has many of the same causes. They include complex financial products that turned sour, market-distorting government incentives and a gigantic underestimation of risk.

“The container ship market is completely overbuilt,” said Thomas Mattheis, a partner at TPW Todt, an accounting firm in Hamburg that advises clients in the industry. He blamed banks that granted easy credit, cargo companies that ordered too many vessels and investors eager for the tax-free profits that were part of the allure, thanks to German law.

“When you look back you can say they all had a share,” Mr. Mattheis said.

HSH Nordbank in Hamburg, the world’s largest provider of maritime finance, is expected to raise its estimate of potential losses from shipping on Wednesday when it reports quarterly earnings. The bank, owned by local governments and savings banks, has already warned that in coming years it will need to avail itself of €1.3 billion in guarantees offered by Hamburg and the state of Schleswig-Holstein, putting a further strain on taxpayers.

“I have to admit that grave mistakes were made in the years before 2009,” Constantin von Oesterreich, chief executive of HSH, said in an interview published by The Hamburger Abendblatt on Saturday. In October, Mr. von Oesterreich became the bank’s third new chief executive since 2008.

Other German banks that were particularly active in ship finance, including Commerzbank in Frankfurt and NordLB in Hanover, which both rank in the top five globally in that market, have said they have made adequate provisions for losses and will not need any government aid.

Commerzbank, which is partly owned by the German government after a bailout, shut down a unit specializing in ship financing this year and is winding down its holdings. The bank warned in its most recent quarterly report that it would be at least another year before it could sell units that were set up to finance construction of cargo ships with names including “Marseille” and “Palermo.” While larger, relatively new cargo ships sell for tens of millions of dollars, older, smaller ships often fetch only a few million — not much more than the value of the scrap metal.

Exposure to shipping is one reason Moody’s affirmed its negative outlook for German banks last month. In a report, the ratings agency warned that the global shipping industry “faces weakened demand amid sluggish global economic growth and evolving structural overcapacity.” It said money that the 10 largest German banks had lent to the shipping industry equaled 60 percent of their capital, the funds held in reserve for potential losses.

Article source: http://www.nytimes.com/2012/12/05/business/global/the-next-crisis-for-german-banks-isnt-greece-its-shipping.html?partner=rss&emc=rss

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Preoccupations: Speaking in Public: How I Conquered the Fear

October 2, 2011 by Leave a Comment

I ran my own accounting firm for eight years, and in 2009 was co-founder of the American Institute of Certified Tax Coaches, a nonprofit group based in San Diego that educates accountants, lawyers and other tax professionals.

My business partner, Ed Lyon, is a lawyer who owns a software company. When he and I were talking about starting the institute, I assumed that he’d do most of the speaking and training and that I’d write our materials. That turned out to be wishful thinking. Ed said he’d need me to do most of the speaking because of the demands of running his other company.

Ed loves talking in front of groups and is good at it. I, meanwhile, had always shied away from public speaking. Before we started the organization, in fact, I thought I’d better get some practice — but my first talk around that time, in front of group of 200 professional advisers for older taxpayers, was a fiasco.

To try to make taxes more interesting, I thought I’d make a point that people’s hard-earned money can go up in smoke if they don’t consider the tax consequences. I planned to ignite a piece of paper that magicians use to produce a brilliant flame. When the time came to do the trick, the paper hardly burned, so I put it in an empty coffee can I had brought and grabbed another piece of paper. This one caught fire right away.

It ended up burning my blouse, but the audience didn’t seem to notice; instead it was staring at the flames suddenly shooting out of the coffee can. An audience member jumped up and put out the fire, and I somehow got through the rest of the talk. I was never so humiliated. Usually I stay and mingle with the audience at talks like that, but this time I left as soon as I could.

After that, I decided to press on with as many speaking opportunities as possible, to try to become more comfortable with the idea of talking before groups. I knew it wouldn’t be easy. I know the material — I’ve written two books about taxes — but I am a bit of a perfectionist and rely heavily on notes, which can create a lot of anxiety.

I talked to my father about how the magic trick had bombed, and he suggested that I have him critique me. I gave the same speech to him, without the magic trick. He said that I seemed more nervous when I relied on my notes and that I should speak more from my heart. I’ve done that ever since, and it has helped.

To gain more experience, I still look for speaking opportunities. I speak before various associations, and I started appearing on television news and talk shows a little more than a year ago. I’ve been on local TV in places like San Diego, Los Angeles, New Orleans and Hawaii.

On television, I’m not as nervous because I’m not in front of a roomful of people. I suppose that if I thought about the number of people watching, I’d become nervous, but I get to provide talking points to the producers, so I know beforehand what they’re going to ask. I’m most comfortable on radio because I can spread my notes all over the desk in front of me and not be self-conscious that people are looking at me.

I’ve made much progress, but the least little curveball can still throw me. Last year, Ed and I were scheduled to speak at a three-day conference in New Orleans. I finished my part on Day 2 and gave a sigh of relief. Ed was supposed to speak the next day, but at 9 that night, he told me that his son had become sick and that he was flying home. I’d have to do his part, too.

“Don’t worry, you’ll be fine,” he told me.

I didn’t even know what he was planning to talk about. The next morning I got sick to my stomach, but the speech went fine.

I could have taken a course in public speaking or joined a group like Toastmasters, but I set a goal of improving on my own. People with my fear have to decide for themselves what it’s costing them if they can’t overcome it.

Although I’m still nervous about speaking — I don’t sleep well a few days before a talk, for example — I’ve decided not to let it keep me from my mission. I feel strongly that what I’ve learned about taxes can help people.

And I’ve found I don’t need theatrics to captivate my audience. When I let go of what I think they want to hear and just be myself, it helps calm my nerves.

I’ve had several audience members come up to me and say they thought my talk was great and that they learned a lot. It’s hard to believe, but some people have asked: “Do you ever get nervous? Because you don’t look nervous at all. You’re such a natural at this.”

As told to Patricia R. Olsen. E-mail: preoccupations@nytimes.com.

Article source: http://feeds.nytimes.com/click.phdo?i=8eadcc8b613d09039835db6764f958dc

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DealBook: Undaunted by Past Setbacks, Hands Resumes EMI Fight

September 8, 2011 by Leave a Comment

Guy Hands, chief of Terra Firma.Qilai Shen/Bloomberg NewsGuy Hands, chief of Terra Firma.

8:08 p.m. | Updated

Guy Hands is back.

Months after Citigroup seized EMI Group from him, Mr. Hands, the charismatic British financier, went to court on Tuesday in an effort to win back control of the music company.

Mr. Hands has asked the High Court in London for access to documents that show the valuation methodology used by the accounting firm PricewaterhouseCoopers to justify Citigroup’s seizure of EMI in February.

If a judge granted Mr. Hands the right to see those documents, he could use them to challenge Citigroup’s taking control of the music company. Mr. Hands believes that EMI, which was making interest payments, was not insolvent when Citigroup took it over.

“We believe there is no basis for any claim against Citi,” said Danielle Romero-Apsilos, a bank spokeswoman.

This latest legal dust-up comes as Citigroup has put EMI up for sale. A handful of private equity firms and music labels have expressed an interest in the company.

Mr. Hands’s action could scare off any potential buyers. But Citigroup plans to indemnify any of the bidders from legal claims by Mr. Hands, according to two people briefed on the deal who were not authorized to speak publicly.

Tuesday’s move rekindles what has been a bitter dispute between Mr. Hands and his former bankers over EMI, the record label whose stable of artists include Snoop Dogg and Katy Perry.

The debut album by Queen, a band signed to the EMI music label.Chris Ratcliffe/BloombergThe EMI music label is being shopped by Citigroup.

Last year, in Federal District Court in Manhattan, a jury cleared Citigroup of any wrongdoing in its role in the sale of EMI. Mr. Hands had sought an $8 billion recovery, plus punitive damages, accusing the bank of defrauding him during the auction of EMI.

He directed his charges at David Wormsley, a top British banker at Citigroup and Mr. Hands’s once-trusted adviser. He said that Mr. Wormsley artificially drove up EMI’s price by lying to him that there was another bidder for the company.

He said that the misrepresentation caused him to pay $6.8 billion for the company.

Mr. Hands is appealing the verdict.

The debt-laden purchase of EMI by Mr. Hands’s firm, Terra Firma Capital Partners, is widely considered one of the buyout boom’s worst deals. It was struck in August 2007 just as the credit markets were freezing up. At the same time, the record business began to tank. Mr. Hands bet about 30 percent of Terra Firma’s most recent fund on EMI. It lost about $2.5 billion on the deal.

Despite those woes, Mr. Hands continues to press on.

Terra Firma plans to raise a new multibillion-dollar fund next year. Aside from the EMI debacle, the rest of Terra Firma’s most recent fund has performed well. Though it is still suffering paper losses, Mr. Hands said that he hopes to return all of the capital invested to his investors.

Citigroup, meanwhile, continues to carry out its auction of EMI. Potential bidders that have expressed an interest in the company include Warner Music and the billionaire investor Ronald O. Perelman.

Article source: http://feeds.nytimes.com/click.phdo?i=df28dc3174eb00f8667df03458ca1426

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