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Ball-Striking and Deal-Striking: Why Business Gets Done on the Golf Course

In the battle against COVID-19, maintaining social distance has been identified as the best way to stop the spread of the virus. That, however, has had dire implications in the business world: in-person meetings were put on hold and most traditional business development activities were deemed unsafe and irresponsible.

Thankfully one of the world’s oldest sports — golf — emerged as a viable alternative.

Courses reopened in early May, some six weeks after the U.S. went on lockdown, and now the sport is booming. Besides representing a small sign that things are returning to normal (or as close as is possible in these turbulent times), it has also presented a lifeline to the business development community.

The Small Business Investor Alliance (SBIA) had cancelled every conference, every networking opportunity. But golf became a welcome work-around for those, like myself, who enjoy hitting the links — and who are eager to do business face to face after such a long exile.

I was fortunate to play golf at some of my favorite courses including National Golf Links of America (NGLA) in Southampton, NY, one of the world’s great courses. Other times I found myself teeing it up somewhere I’d never played before which included the mighty Streamsong golf resort and the historic Pinehurst which lived up to all expectations. I have always found my time on the golf course to be productive. The access to potential clients and business partners cannot be equaled anywhere else, and the setting is far more relaxed than that of a conference room.

It is, in other words, the ultimate win-win: I get to engage in a favorite activity, while at the same time getting important business accomplished. You really can’t beat it. While the business community has long embraced this point, our present reality has strongly reinforced the notion.

Back in 1993, a survey concluded that fully 25 percent of executives golf. Far more recently, Golf Operator magazine noted that about 90 percent of Fortune 500 CEOs are regulars on the links, and that in general, executives who golf make 17 percent more than those who do not.

George Souri, owner of UltraPawn, told Forbes that golf outings are a way to develop relationships, not seal a deal — i.e., they are a means to an end, not an end in and of themselves. As he put it, “People make investments in people. A round of golf is a great time to demonstrate you are a smart, competent, and likable person. If you are a thoughtful golfer who engages in good conversation on the course, you will increase your chances for closing a deal.”

I couldn’t agree more. Because you are with a potential client or business partner for four hours or so (give or take food and/or drinks), you get to know one another better than you ever could in a boardroom or over the phone. 

And consider the things you could learn about these potential partners, just from the way they play. Do they try to hit it down the middle of the fairway, or do they cut the corner of a dogleg and go for the pin? Do they get frustrated if things aren’t going well, or do they maintain their composure? Do they play fair and square, or do they cut corners? 

Each of those actions is a window into one’s character, and can play a role in whether you want to do business or not.

Golf’s worthiness as a business vehicle was made clear to me during a recent round at a course near Philadelphia. I happened to be in a foursome that included the managing partner of another firm, and we hit it off. It was a really enjoyable day, and we discussed a deal I was working on. In the aftermath we exchanged emails, and he’s now helping me structure that deal.

I have seen that happen again and again. Nearly every golfer has. 

Of course, there’s a level of finesse to discussing business on the links. It is generally agreed that it is best to ease into shop-talk — to make key points subtly and over time, rather than forcing the issue. Bill Storer, president of Business Golf Strategies in Basking Ridge, N.J., went so far as to tell Golf.com that he believes it is best not to discuss business before the fifth hole, nor after the 15th.

You are, after all, playing the long game here, in every sense. As with golf itself, it is best to let things unfold slowly and naturally, to allow everything to happen in its time. This year, more than any other, has offered ample evidence of what a great approach that can be.

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A Business Needs to Know Thyself; Here’s How To Do It

“Know thyself,” the ancient Greeks advised. And indeed that philosophy carries a lot of weight in the business world, all these years later.

A quick online scan will reveal ample entries regarding the ways in which a company might evaluate its employees, or how employees might examine themselves to better build upon their strengths and improve upon their weaknesses. 

But how can companies — particularly private equity firms and finance companies — assess themselves? 

It is a question that was raised in a conversation I had not all that long ago with a buddy in the business, and it is not easy to answer. He wanted a surefire method for assessing and quantifying the health of his investment firm’s business-development function. I gave that a lot of thought, and the result is the 20-question list you see below, which I believe would be useful to any investment professional.

The argument could be made that many companies focus too much on the bottom of the funnel (i.e., on deals closed) rather than at the top of the funnel, with deals received and term sheets issued. At Saratoga Investment Corp., for instance, we close only one or two percent of the deals we consider. It’s a very mathematical formula: If we source 1,000 deals, we might issue 80 term sheets and close 20 deals. I would argue, then, that you’re better off looking at all the stages of the funnel, not just the bottom.

That was my mindset in compiling this list of questions. Some of them involve subjective measures, some objective. They cover a wide variety of topics — deal flow and execution, marketing, technology, resources and networking. All of these things are pieces to the larger business-development puzzle, and combined they tell the tale of just how well a given investment firm is performing.

Particularly telling are the questions dealing with objective measures — the ranking that is used to determine who the team builds relationships with; the method of reviewing and executing NDAs; the means of tracking conversion rate in a company’s deal pipeline; the proprietary deal flow from non-traditional referral sources; and the effectiveness of marketing campaigns.

At Saratoga, we use two variables — relationship importance and relationship status — to track our referral sources, of which there are approximately 130. Our best referral sources are assigned A-1 rankings, with corresponding grades for those who are less so. These can all be tracked by your CRM.

The importance of self-assessment cannot be overstated. Our firm reviews its referral sources every month, and every quarter we do a broader business review, where we review strategy, determine upcoming city visits, conferences, etc (at least in non-COVID times). That is also when we review the aforementioned drivers — deals sourced, term sheets issued and deals closed.

The list I have compiled below offers further food for thought. These are things I have often taken into account, but never before put into writing. I think any investment firm that is looking to determine how they’re doing would find it a valuable resource. 

Business Development & Deal Origination Assessment

Below are 20 questions to help you determine the effectiveness of your business development and deal origination efforts and if they are in alignment with your organization’s goals.  Place an “x” in each column that corresponds to your answer. After answering all the questions, add each column by using the point value of each column (e.g., strongly agree = 5 points). Once complete, add the sum of all columns for a total score. Use the table below to determine your overall effectiveness.

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How The COVID-19 Pandemic Has Impacted Lower Middle Market Private Equity

While no one should ever lose sight of the fact that the coronavirus pandemic is, first and foremost, a public-health crisis that has seen thousands die in the U.S. alone, the economic implications cannot be ignored, as they too have been devastating.

That has never been clearer than it is in the business development world, where deal-making came to a virtual standstill in the all-important spring window, a time of year when private equity firms are busy closing deals. There was talk of borrowers defaulting on loans, talk of lenders struggling with portfolio issues, talk, even, about whether much of any deal making will happen in the year 2020.

The pandemic has been, in short, the quintessential black-swan event — i.e., an unexpected occurrence that has made a shockingly severe impact. Few foresaw this happening, even in the early days of March. And it has unfolded in real time, leaving investors and managers alike bracing for whatever might come next. 

Some of my business efforts include sourcing investment opportunities for the Business Development Company (BDC) space where no company has been immune from the market decline.

On March 21, the Wall Street Journal declared that two of the larger BDCs, FS KKR Capital and Ares Capital, had lost 60 percent and 45 percent of their value, respectively, as individual investors grew skittish. On April 6, Fitch Ratings downgraded BlackRock Capital Investment Corporation, the world’s foremost asset manager.

Two days later, analysts for Moody’s Investor Service wrote in a report that BDCs were likely to be the sector “most affected by this credit shock,” and dropped their rating from “stable” to “negative.” And on April 16 Reuters reported that Golub Capital and Gladstone Capital had dramatically cut their dividends.

And on and on it went.

Various life preservers were tossed in the direction of the $110 billion BDC industry, which represents a sizable sliver of the $812 billion private credit market. The Federal Reserve came through with the Main Street New Loan Facility and the Expanded Loan Facility, which earmarked $600 billion for small businesses. The Small Business Administration offered up the Paycheck Protection Program, with loans to the companies in that same sector (but places restrictions on those owned by private-equity firms). The SEC also announced temporary regulatory relief that would allow BDCs to continue investing in small to mid-sized businesses.

But it was unclear how much, if at all, any of these measures would enable BDCs to ride out the storm. What seemed far more likely is that some companies would be shuttered or gobbled up by their larger brethren, as was the case following the Great Recession of 2008-09. Particularly notable at the time were Ares Capital’s $648 million acquisition of Allied Capital, and its $3.4 billion acquisition of American Capital.

Those companies that have continued to tread water during the present crisis have turned inward, evaluating where matters stand with all their investments. Some industries such as B2B software appear most likely to hold their value throughout the pandemic, while those in such areas as hospitality, entertainment and retail seem far less likely to do so.

Portfolio diversification is, as a result, crucial to survival. So too is maintaining liquidity, as that allows a BDC to pay dividends and help the companies in its portfolio overcome whatever cash-flow problems they might encounter. That may, as author/advisor Rida Morwa suggested in a piece for Forbes, involve providing relief for something like a rent or loan payment. Whatever the case, liquidity is vital — something that was made clear when the aforementioned firm, Golub, made a rights offering through which it hopes to raise over $300 million.  Bain Capital Specialty Finance announced it will make a similar move.

What does all of this mean for the current state of deal making? 

1. It has put a premium on existing, trusting relationships.

Having a great relationship with those you do business with has always been important, but never more so than now. When bad news strikes, those who can rely on their partners for accurate, timely information will be able to make much better decisions than those left in the dark. Through this crisis trust will as often be confirmed and as it will be violated. Do you trust those you do business with?

2. It will define their reputation as they plan a path forward during recovery.

It is at a time like this when reputations are forged. And with social media far more prevalent than it was during the Great Recession, more and more stories of good behavior on the part of investors — as when they support companies and their employees — will no doubt be circulated. So, too, will stories of bad behavior which I fear will be far more common.  The private equity industry has many more public critics than sympathisers.  

3. It has highlighted the importance and value of using technology to stay connected and maintain the strength of relationships.

Zoom usage has in particular spiked. As of late April the video conferencing platform had 300 million daily users, up from 200 million earlier in the month — and up from 10 million in December. As for LinkedIn, Forbes contributor William Arruda pointed out that there are several common-sense ways in which the platform can be used during a time when many are working remotely. 

The good news is that the markets will recover.  People will go back to work. And the strong companies that come out of the crisis will be positioned to grow. As noted by Fitch Ratings, the top companies in the sector, who have no debt maturities until 2022, have a better chance at coming out the other side intact. It might be difficult for any of them to know the timing of this, amid an unprecedented crisis, but there is hope.

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How to Get the Most Out of a Business Conference

There is infinite value to a business conference — value in terms of relationships built and in terms of deal flow. The two obviously go hand in hand, which is why our business development team at Saratoga Investment Corporation is so active on the conference front. Between myself, Marissa Mann and Mark Weaver, we attend about 100 a year, 30 to 40 of which I do myself or in tandem with one of them. That means one of us is pretty much always hustling through an airport.

via GIPHY

The idea, of course, is to get all you can from these gatherings. And to do that, there are several things to keep in mind:

Have a plan: I mentioned in a previous blog post all the things you should pack for a business conference — everything from a phone charger to business cards to a thumb drive containing whatever presentation you might be giving (if you are doing so). But your planning should go way beyond that. You should be sure to get your hands on the attendee list ASAP, so that you can map out your networking opportunities — just feed that information through your CRM and identify which groups should be a priority. I also use scheduling software called Calendly, which allows me to coordinate my schedule with those of the people I hope to meet with.

Immerse yourself: Participate in the conference, as opposed to just being an attendee. Give a presentation. Get yourself on a panel for one of the breakout sessions. I think those who run these events really appreciate thought leadership, because while the networking aspect of these things is important, there’s always the hope that the content will be a value-add and make us better originators.

Understand that the conference isn’t just about the conference itself: It’s also about the cocktail hours and the dinners and the golf outings. I’ve always found that more basic blocking and tackling gets done in 20-minute meetings where it’s like, ‘OK, now I know what your firm does, now you know what my firm does, let’s try and make a deal.’ But the relationship-building occurs at the dinners and on the golf course, because we’re all human. Also — I’ve found I can learn more about a person, what he or she is really like, during those unguarded moments on the golf course. If someone is throwing a temper tantrum after every missed putt, that’s probably not someone with whom I want to build a relationship. I mean, life’s too short, right?

Do the follow-up work: What you do after the conference matters as much as what you might have done during it. That means sending thank-you notes, follow-up proposals, etc. Whenever I have a meeting at a conference, I leave it with action items. It’s not just, ‘Hey, it was good to meet you.’ It’s like, ‘OK, I’ll send you this deal or I’ll introduce you to this executive.’ … ‘I’ll do X, Y and Z.’ The follow-ups really create the relationships. … It’s that give-to-get mentality. It’s also important to input your learnings from these meetings into your CRM, so that the information is better institutionalized within the firm. That’s how these things can have lasting impact.

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What Catches My Eye in a Two-Pager

It has been said that brevity is the soul of wit. It is also the soul of a good two-pager — and a good thing, too, as the whole idea is for a firm to get to the heart of the matter with this basic marketing document.

As soon as I pick up a two-pager, I’m seeking the most essential information, seeing as I may be sifting through dozens of these in any given week — and if that information can be presented in a way that is graphically interesting, all the better. Too much text, I find, merely muddies the waters; the overall message gets lost.

And really, any extraneous information — the firm’s history, etc. — can be communicated in an introductory phone call, or even a follow-up call. The two-pager acts as a gateway to such contact, underscoring what the firm focuses on investing in and how they’ll help these types of companies increase in enterprise value.

Here are the specific things I’m looking for:

Your Firm’s Overview: That’s where my eyes go first. I want to find out the basics like when was the firm founded? How big is the fund? What type of investments do you make? How big are the companies you target?

Your Investment Criteria: This section answers questions regarding the types of company attributes you’re seeking for ideal investment opportunities. What industry sectors do you target? In which geographic areas do you invest? What’s the operating profile of ideal targets (ie distressed, more mature, early stage, etc)?

Your Portfolio Companies: Nothing speaks louder than success, so tell people about the companies you’ve bought and sold.  If your firm has been around for a while it’s difficult to list all your investments, but you can certainly summarize and highlight those that best tell the story or your firm.  Highlight which companies are seeking acquisitions because that is often a fertile area for conversation. And again, make it graphically engaging to captivate the reader.

Your Key Contacts: Depending upon how your company is structured, you might want your outreach to go through your business development team, or through the entire investment team. Either way, it’s important to have those folks listed. (We have received at least one two-pager that split the difference, providing headshots of the entire investment team, as well as headshots of the BD people, along with their contact information. That works, too — especially if you happen to be attending a conference with representatives of that company; helps to be able to put a name with a face.)