Lessons I Learned from Waterskiing that Apply to Business

A champion skier once told me a few things that have stuck with me:

• ·   slalom skiing is very easy, you set your position, accelerate across the wake, slow the ski down turn around the buoy and repeat six times;
• ·         a dedicated ski boat’s V8 engine will always beat you in a tug of war no matter how strong you are; and
• ·         where your eyes go, your body will follow.

How does these relate to business?

Something that is repeatable

First, many things in business appear “easy” and repeatable, but to succeed you have to do them well. However, not everything is as easy as it appears; many hours of practice have been done so that it looks effortless. Watch Steve Jobs give a presentation – it seems effortless, few or no slides, no notes and he captivates the audience. Why? Because he practices each presentation until he gets right and appearing effortless.  Many sports pros believe that you need to do something 10,000 times to be able to do it effortlessly. To quote an old golfer:

“The more I practice, the luckier I get.”  Garry Player

Many top sportsmen claim that when they reach a certain point of proficiency, time seems to slow down. This because the body and brain are so in tune with what is being done, the brain has the ability to take in other outside stimuli. Therefore practice the things you want to do well until they are second nature and you can see what else is happening in the market, rather than just focusing on those things that have to be done.

Furthermore, not only do you have to do something exceeding well through practice, but you have to be able to do all the steps of the process as well. Using the skiing example above, if you cannot slow the ski down, it becomes irrelevant on well you can set your position and cross the wake as you will end up coming into the buoy later and later as you go down the course, and eventually not be able to complete it. You have to do all the steps well, and it is better to do all of them at a good level of proficiency rather than one exceedingly well but the rest mediocrely. To quote the old adage, “a chain is only as strong as its weakest link!” I once worked with a company that had one of the best Merger and Acquisitions due diligence teams I had ever come across and they knew all there was to know about the target; however, their integration process was very weak. As a result, few of their deals ever realized the expected benefits.

In the current business environment, corporations have downsized and let many of the employees go, giving more work to the remaining employees. What is becoming apparent is that current corporate employees are overwhelmed with the load of work they have, they don’t have time to look up and see what is happening in the market around them or think strategically. As a result, the company’s ability to anticipate and adjust to changes is diminished and one can expect them to face much larger problems in the future.

Don’t fight a battle you cannot win.

It is true, you cannot beat the boat in a tug of war, so don’t try. The success in skiing comes from setting the right position and using the acceleration as the boat pulls you to increase your angle of attack to the next boy. If your position is not set or you get pulled out of position, you cannot pull your way back. Thus understand the power the boat has and use it efficiently to achieve your goals. In business, understand what variables you can and can’t influence, and focus on the ones you can influence. If your competitor has developed a production process which produces the product for a price you cannot match, don’t tie your company in knots trying to match that price. Rather develop a sustainable competitive advantage that takes price out of the equation and focus on that. The best example I have seen of this is a local wealth management firm which differentiates itself not on it performance (since most wealth management companies have similar performance) but on tying financial goals to life goals. In this case their competitors have a hard time competing as financial performance is has been removed from the equation.

Look where you want to go

Finally, this lesson I have found applies across all sports. When trick skiing or jumping look up not down otherwise you will find your body quickly heading down into the water. In slalom skiing you need to look ahead of the buoys since you want to start turning before you reach them. If you look directly at them, you will ski right up to them and then be out of position to turn. In business, you need to look at the end goal at all times. There are many things that will arise during the course of business which are very important and require a response; however, look at them and determine their relevance to the company and its end goals. The best way that I have found to do this is as follows:

(i)                  Does this item impact our sustainable competitive advantage (“SCA”). An SCA are those activities which provide high value to the customer and a strong ability to beat competitors. If the item doesn’t impact the SCA, it may be important, but it is not essential ;

(ii)                Will our client’s care about its resolution? If not, the again its importance is diminished and it moves further down the list; and

(iii)               What impact will it make on our goals or Key Performance Indicators? This helps us rank it among all the other priorities.

Thus practice, practice, practice is the key. Keep practicing all steps of your processes until the firm very proficient at all of them.  Know what battles you can win and where you can’t change the dynamic that removes your weakness from the equation. Finally focus on where you want to go, and don’t get distracted by the daily issues that arise.

Copyright 2011 Marc Borrelli

Does a Good Legal System Jeopardize International Joint Ventures

Having done business around the world, especially mergers and acquisitions and joint ventures, it has become apparent to me that the better the legal system in the home environment and more comfortable people are with it, the more likely the failure of cross border dealings.

Looking at legal systems as a continuum, starting with the US and UK at one end and moving from the developed world to the emerging world at the other end, the quality of the legal system declines. The decline is due to the differences in the legal systems (this occurs even between developed countries, i.e. USA and Italy), independence of the judiciary, and political and local corporate influence.

Relationships

Due to the decline in the legal effectiveness of their legal systems, local businesses move from a contractual basis for any agreement to a relationship basis. If the legal system cannot protect you, then you need to be sure of your partner and so building a strong personal relationship enables you to keep the venture successful.

This is where the process starts to break down for many western businesses. A personal relationship is not a business relationship derived from negotiating across as table and sharing a strategic vision, but it is getting to know each other personally. In my experience, US businesses do not encourage socializing with work colleagues outside of work or with people in the industry. This trend is increasing as corporations terminate people for what they have posted on social networking sites with regard to their beliefs and values. 

As a result, many US executives do not invest the time to build personal relationships when operating in foreign countries. Furthermore many senior executives that are responsible for hundreds of millions/billions in revenues do not see the foreign company owners as equals because the foreign business is a fraction of the size. However, to the foreign owner, in their country they are just as important and expect to be treated as equals. Failing to do so dooms the relationship from the beginning.

For good information on relationships I would recommend reading:

• Understanding Cultural Differences -Germans , French & Americans -  Hall & Hall
• Kiss, Bow , or Shake Hands - How to do business in 60 countries - Morrison, Conaway, & Borden (published by Adams Media corporation)

As the negotiations proceed, one of two things typically happens to the deal.

Roadblocks

All of a sudden issues start to arise. The issues make little sense to the transaction and much time is spent trying to spent resolve them. Once resolved, another one emerges and the transaction slows and frustrations arise which can damage the relationship if the deal gets done.

A quote I once heard that seems to apply in such situations is, “The problem is not the problem, but there is a problem.” The problem often is that the other party has not developed a relationship with you to the point that they are comfortable with entering into a business agreement. These issues are a way of slowing down the process so that they can spend more time building that relationship and getting comfortable.

When situations like this arise, it is wise to slow down, spend time on the relationship and allow the other party to get comfortable as it will lead to a more successful long term relationship.

Nothing

Nothing! "The simplest form of denial is delay", a Chinese proverb. Nothing here means that the negotiations just continue as though everyone was in the UK or the US. These can be the worst situations as it often implies the following:

·         The other side has little interest in the deal and is just going through the motions to learn as much about you, your company, your products, processes and prices as they can or just to save face. As a result, a lot of time and money is spent negotiating a transaction, only to have it fail to close for reasons that are never fully understood.

·         The other side has all the power in their jurisdiction and so the negotiations are largely irrelevant. There are so many examples of this, but a few to think of are the issues BP has recently had in Russia and Rio Tinto had in China; or

·         The other side sees a contract merely as reflection of where the negotiations were at specific point in time. However, negotiations are expected to continue post signing. This latter point I have encountered often in China.

An example of this arose when discussing a US company’s global expansion plans with its Chief Financial Officer (“CFO”).  This company was successful in the US with sales in excess of a billion, but according to the CFO, it international joint ventures had all failed to meet expectations to date. However, the company was negotiating a joint venture in China which it expected to become a substantial part of its future business due to the potential growth of the Chinese market. The CFO added that a major international law firm was handling the negotiations and document preparation for them.  Obviously they would have a good contract for the joint venture, but the concerns rose when the CFO said the following:

·         Neither he nor the CEO had been to China to meet their opposite number in the Joint Venture; and

·         The Chinese joint venture party was a wholly owned subsidiary of the City of Shanghai, so it was powerful enough to deliver the expected benefits.

My immediate concerns were that the US executives had built no relationship with its joint venture partner, so how was going persuade its partner to do what it wanted when difference arose. In addition, how were disputes going to be resolved? While the legal agreements would lay out the remedies if a dispute arose, could the US company win a lawsuit in China against the City of Shanghai; and if it could, could it enforce it any judgment. More success in its international joint ventures would surely have come from spending time in these foreign countries building closer relationships with their partners and a greater understanding the markets and its sphere of influence in the joint venture.

Recommendations 

Therefore, for many companies looking to do joint ventures or acquire companies in some of these jurisdictions, you should:

1.       Build strong personal relationships

This needs to be between the business operators and not just the joint venture/M&A teams.One dinner does not a relationship make! Especially not if the dinner is the closing dinner. Get to know the people and their families. In many of these countries, if you haven’t been invited into their home, you don’t have a personal relationship.

2.       Get on plane

Regardless of the desire to keep corporate expenses low, you cannot build a relationship over the phone or e-mail. This is done face to face, and often over meals. Understand their culture and history. You will be build relationships quicker if you know about their country, culture and history and especially as they see the world, not through the eyes of your own domestic media.

3.       Understand the domestic power structures

Who controls your joint venture partner? If it is a local government entity or as is often the case in China, the army, how do you protect yourself and what do you do to limit the downside risk. Build relationships with people further up the chain of command and in the controlling vehicles. Also if you want to take the business somewhere they don’t want to go, don’t be surprised if you are harassed. Be prepared for it.

4.       What you take in you leave

In many countries, the protection of intellectual property is low and so be prepared for whatever you take into the country will be copied or sold with your logo by a third party. Be aware of such situations and determine how to protect your intellectual property and YOUR BRAND.

Legal Documents
Don’t ignore the legal documents, have good ones prepared by good lawyers, but don’t solely rely on them, the other side isn’t. However, have a good local attorney to support your domestic attorney to help you with the unwritten rules.