The 7 Keys To Billion-Dollar Success

Peter Bond, Billionaire Entrepreneur and CEO of Linc Energy joined us last month for Prosperity Advisers’ Business Leaders Dinner.   

The dinner was part of an occasional series to showcase the stories of those that have reached the top of their field in business. Previous speakers have included Gail Kelly and Chris Cuffe.

Prosperity CEO, Allan McKeown congratulates Peter Bond (left) on his impressive local to global journey.

Peter’s return to Newcastle and to Prosperity was a blast from the past for him, a man who in 1984, at 23 years old started his career in coal in Lake Macquarie with ‘$500 bucks and a ute’, and by 26 had made millions.  Fast forward 28 years and today he is the worldwide leader of a billion dollar public company “but still at the beginning of the biggest journey” he says.

His is so much more than a local boy made good story.  At Prosperity we had the pleasure of working with Peter in Newcastle and then in Linc’s formative years through our Brisbane office. Peter’s lessons are real, raw and honest.

He shared with us on the night the seven things that made his journey from small business to global company possible.  They are poignant lessons for all those growing a business, particularly those facing tough economic headwinds.  So I want to share them with everyone we work closely with so you too can benefit.

 

1.  Vision: Know what you want

Peter Bond has one thing that many business owners don’t… an impressive, passionate and unerring vision for the business he wants to create.  And he is proud to admit it.

“As a business owner you need to pursue your vision fearlessly” he said, “You’re the CEO, if you aren’t passionate about it, who is?”

And Peter’s passion extends much further than building a successful business.  In fact Peter is committed to providing the world with an environmentally friendly or ‘clean’ process for converting coal into oil that will change our capacity to produce energy in many countries throughout the world.  “Every country in the world that is long coal and short oil can change it’s energy futures right now,” he said.  This is his vision, and given his impressive track record to date, I have no doubt that he can deliver on his promise.

 

2.  The People: Get the best – It may take a few years, but keep striving

As your business grows he was emphatic that you need different people in different roles, roles that suit the business’ growth requirements.

“The people who were with you in the first five years are probably not the same people who will be with you in the next five, or the next.  You need different skills as your business grows, and fresh people around you to challenge your team and take the business where it needs to go”.

 

3.  The Trend – Macro economics matter

As a business owner, you must understand the macro economic trends your business is built on better than anyone else.  “You must understand the price points that make your business successful and the trends that underpin your ‘industry’s growth’.  I was looking at the oil price back in 2004 when it was just $27 per barrel and with a well researched understanding, it was obvious oil was headed higher, much higher.  It is this trend that provides the foundation for Linc.

Peter shared at length his insights into the enormous shift of Asian population into the middle class that is changing the way our world uses energy, driving the commodity cycle and supporting oil prices at $100 or more for the longer term.  “This trend is not going away,” he said.

“And, we know that there are some heavy weights holding the oil price up, chiefly those massive oil producing nations who have low direct oil cost, but high costs of sovereign operations.  Whilst their oil production cost can be as low as $10-12 per barrel, their government operations cost a lot more, putting the effective oil price at between $80-$95 a barrel to keep them funded.  Whilst you could never prove it, whenever the oil price slips a little, the taps appear to slow down, restricting supply until demand catches up.

“It is these very trends that are likely to keep oil above $80/barrel  and pushing over $100/barrel for the foreseeable future,” he said.

“But, these sort of trends are everywhere, and knowing how your business fits into them is critical to your strategic planning and positioning of your business”.

 

4.  The Systems and Procedures: Lay the Foundation

Linc Energy takes their systems and processes very seriously.  “In a public company, the systems and procedures that you put in place are the foundation of your growth.  At Linc we have been very focused on proving our systems, processes and procedures for creating a clean energy business.  It is these robust systems that enable us to grow the way we have and take the company worldwide”, he said.

 

5.   Funding and Execution:  How you’ll implement your vision

It is also imperative to know how you are going to fund the growth envisaged in your business plan.  “I wrote a business plan for Linc when it was worth $1 million that planned for the entry of public funding.  It needed it to succeed.  We needed to bring in investors to give us the scale to expand worldwide and execute on the opportunities in front of us,” he said.

“We know we were there at the right time, in the right place and had the right vision for investors. We found that financiers in London and New York wanted to back winners.   So it was critical to demonstrate to these investors that Linc was a company that knew how to execute on the vision and deliver returns.”

 

6.  Sales and Marketing – Lead from the Front

Don’t underestimate the power of good sales and marketing.

“I am lucky, I have never had to call someone and sell our oil, because being a tradable commodity, oil pretty much sells itself.  But I have had to spend my whole career selling our business, attracting and educating investors, creating a great work culture; and ensuring the right PR messages get out.  Sure I have made a few errors along the way, the biggest of which was stepping away from the frontline for a while at the wrong time.  As CEO I recognize how critical sales, marketing and PR/IR are to our success.”

 

7.  Risk and Reward: 5X is the minimum

Peter Bond was adamant that he now does very little that has the potential to achieve less than a 5X return.  Whilst to many of us that seems surreal, his explanation was direct and enthusiastic.  “At 15 to 20% returns I am not an entrepreneur, I am a business manager, and that’s not what I am,” he said.

“We’re always pushing in this business, risk and reward go together.  If you go too conservative you actually raise your risk.  If you over analyse M&A deals you can always find a reason not to do them.  But we have got to a good place.  We need to know the deal ticks all the boxes so the facts enable us to do the deal, but the macro completion of a deal will keep pushing and meeting our vision to keep leading our industry in clean energy.  We are focused on keeping ourselves at the forefront of what we do.”

While this is a very brief overview of Peter’s extensive presentation there are take home messages we can all learn from and apply to our businesses.  Whether you run a development company, a mining operation, a manufacturing business or a services firm, you can apply them to your scale of operation and adapt them for success.

From ‘500 bucks and a ute’ Peter’s business interests now span 400 global coal, oil and clean energy assets stretching from Uzbekistan, Alaska, across the US and Australia with more to come.

His story is a truly inspiring one.

Lessons From Rinehart

As published on www.DynamicBusiness.com.au

Regardless of where fault lies, you have to feel for the Rinehart family.  All families have conflict from time to time behind the privacy of closed doors.  Wealth creates a platform that allows individuals to “shout louder” through the courts and the media. 

The Rinehart family dispute reminds us that we are in the early days of the largest generational wealth transfer in Australian history.  Here are some sobering facts history offers.  Only 30% of businesses make it to the second generation (3% profitable by the third). In wealth terms, the second generation loses 65% of family wealth, increasing to 90% by the third.  Wealthy families often manage inheritance badly.

Here are 5 things that could have assisted in preventing the conflict we have seen played out in the courts and on the public stage.

(1)    Prevent vesting by using perpetual structures

“Bankrupting” tax liabilities when a trust ends or “vests” makes for great headlines, but this is serious news for anyone with a trust.  Most family trusts have a lifecycle of about 80 years, sometimes less.  The consequences of vesting are appalling.  On a good run, a family loses about 24% of the growth in its wealth as tax.  Unmanaged, I have seen rescue missions to prevent liabilities of more than 60%.  Either you sell the asset to pay the tax or if the asset is illiquid, the family is placed in significant debt.  Neither option appeals.   Yet the tragedy is that is possible to set up perpetual structures which remove the issue.

(2)    Split assets into separated structures

Arguments between adult children can destroy family unity for generations annihilating not only wealth, but a family legacy.  As unbelievable as it might sound, I regularly see battle lines drawn by adult children around who was the favoured child and who has the higher “entitlement”.

At an adult level, these conversations manifest themselves as disputes over who gets the low yield second tier commercial property assets and who gets the high yield blue chip growth stocks.  Put 3 adult children in control of a single pool of assets in a structure and voting can be used by two against one, or one attempts to dominate.  The simple solution is to progressively separate assets into separate structures.  Choose which asset goes to who.  Perhaps get the adult children involved in the choice.  This leaves children with nothing to dispute and removes a key obstacle to family unity

(3)    Choose the right assets to pass to future generations

It is extremely difficult to leave management of an active business to adult children but put ownership of part of the equity in a structure for the benefit of grandchildren.  If the business comes to a substantial “fork in the road” (a certainty across the span of 2-3 generations) and the children choose one path, it is always possible to use the benefit of hindsight to say that the better decision for the grandchildren would have been to take the other path.  Personal, business and lifestyle needs of the adult children may be in complete conflict with the objective of growing equity for the grandchildren.  One solution can be to change the nature of the grandchildren’s interest to a non-equity interest.  For example, using a secured loan into the business which can be repaid to the grandchildren’s structure if the business is sold, merged or restructured without dispute over the “value”.

(4)    Address independence and control issues up-front

Where control of assets and the intended beneficiaries are not in complete alignment, conflict occurs.  A classic example is where grandchildren are due to inherit at a certain age, but parents who have control defer this inheritance due to concerns about “readiness”.

Time poor parents may confront an affluenza affliction that often faces the younger generations in wealthy families – heirs lacking a purposeful pursuit in life develop personal character issues such as a false sense of entitlement, a desire for instant gratification – fast cars, boats and big houses – without the self control to moderate consumption.

You can remove conflict and control issues by putting clear and unambiguous rules in place from the outset.  Involvement of independent and experienced professionals in the management of the asset base and the resolution of issues such as suitability to inherit, can take the heat out of family dispute.  The art of doing this is another article in itself on governance.

(5)    Build character, teach and live enduring family values

If your parent is the richest person in Australia, how do you develop a sense of achievement and identity that is not dwarfed by them?  This may seem to be an impossible challenge without the right support structures.

To be a member of a Family means something, whether it is written or unwritten.  Big Families are a big business.  The controllers of wealth can often be so busy in the management of the family business that they lack the time to coach the next generations.  Transfer of values from parent to child to grandchild can be difficult if contact is limited. Clear communication of what the family is, what it stands for, and what conventions of behaviour are appropriate is critical.  Engaging family members in business with aligned leaders and can deepen engagement.  Philanthropy can be another mechanism which teaches key skills.  How families use tools like family constitutions and governance structures will be the subject of another article.

Universal principles

Most people would say “all of this does not apply to me and my family, I’m too small to care”.  But I disagree.  The legacy of any family is worth preserving.  The steps outlined above are as relevant to a family with $1.5 million in assets to pass to the next generation as they are to a family with $1.5 billion.  Disputes still arise.  Things may be much less complex to manage but the principles have broad application.

Primo Smallgoods gets a boost from Affinity

The Prosperity Advisers Transactions team has been hard at work driving one of Australia’s largest capital transactions throughout 2012, and now, we are pleased to celebrate Primo Smallgood’s success.

Prosperity have acted as Central Advisers to the owners of Primo Smallgoods as they have sought capital and sold a significant stake in their business to Affinity Equity Partners at the tail end of 2011.  With Primos’s enterprise value reported to be in the order of $1 billion, the transaction was a remarkable coup for the owners in a difficult capital markets environment and one Prosperity Advisers is proud to have been involved in.

Primo is one of the great stories of an Australian family creating an enduring and iconic brand across three generations.  They are Australia’s leading manufacturer of small goods with their products finding a place in most Australian fridges.

“The group has an impeccable record of growth, and this new capital allows the business to enter a significant phase of opportunity with the construction of a major new factory,” said Stephen Cribb, Director and head of the Transaction team.

“In the case of Primo Smallgoods, a four track process was conducted because of the volatility of capital markets.  Our process involved simultaneous work on a potential IPO, trade sale, external private equity and “in-house” private equity arrangements through syndicated borrowing,” Stephen said .

Prosperity Advisers have been there through every step, working closely with shareholders, management and panel advisers to help balance the competing objectives of raising fresh capital for new investment and reducing shareholder portfolio risk.