Letter from America
Article Date: May 01 2004Marks & Spencer, Midland Bank, Pearson, Regus, Ferranti… major blue chip organisations with something in common. They have all made disastrous investments in the United States. So here’s my take on life in business America - with apologies to the late, great Alastair Cooke.
My first experience of doing business in America was working for the UK subsidiary of a US technology company.
In those days, and we are talking about the late 1970s, my overwhelming impression was of tight and sophisticated financial management of every aspect of the business. Surprising when you think this was a technology business!
It was somewhat ironic then that the first major acquisition Sage made outside the UK was of a Dallas-based accounting software business called DACEASY in the early nineties.
Learning from the US
We were all very cautious about the deal but at the end of the day we were lucky for two reasons. First, and above all, the CEO who stayed with the business was a really good guy – he is still on our board almost 18 years later – honest and extremely professional. Secondly, they had certain business practices as part of their business model that played an integral part in Sage’s subsequent development.
In particular, the marketing to their installed base, especially their telemarketing, was miles ahead of our UK operation at the time, but we were quick to catch up.
My own personal experience, both past and present, is at odds with many others. In the mid-eighties, the City would almost discourage companies from making acquisitions in the US.
I think such sentiment is complete bunkum, but the famous Churchillian line that the US and the UK are divided by a common language is by no means lost on me.
Deciphering the US version
In early 1994, Sage bought their second US company, this time in California. To be honest, the acquisition was not a success but fortunately it was relatively small. But to my point – I always remember going to a presentation given by the sales director where he told us the business was turning round and that we were now on a million ‘run rate’ before moving on to his next slide with great aplomb. Now this was well above break-even and I was suspicious so I said, "Hold it – how do you get this number?"
"Well, this is the current run rate of sales," he replied.
"What runs at what rate?" I asked. The answer I eventually got from him after a lot of effort was that the run rate was the last three days sales of the month x 123 (it was a leap year!). Now the fact that it coincided with a special month-end discount deal and that most sales happen at the end of the month or quarter meant the numbers were complete rubbish and the run rate was much nearer million than million!
There are two lessons to be learnt here. The first is that Americans are very good at presentations. Second, the Americans are polite. Too polite! They want us to hear what we want to hear. The ‘can-do’ culture too often ends up with us being disappointed as what we were told was easy to do just didn’t happen. Over-enthusiasm can be mighty frustrating.
But it can also be terribly dangerous. We need to know the real truth because then we have time to do something about it – before it becomes a really big problem. So beware – always ask the tough questions when you have someone from the US present with you.
Flexible work locations
Another major difference between the US and the UK is the sheer physical size and economics of America.
For example, it is not unusual for a number of senior executives to spend all week away from home, mostly on the road (or, more accurately, in the air!). This has the benefit that management will be very flexible in where they will work even if they do not permanently relocate.
This reminds me of a lovely story from a Californian business friend of mine who was working in Florida and was told to go directly to Fargo, North Dakota in the middle of winter. And directly meant directly; not via home for a change of clothes! This had the effect that my friend put on his expense claim form the cost of an overcoat.
"What’s this?" his boss said. "We don’t pay for staff apparel, period!" and crossed out the offending item.
My friend was rightly indignant but held his tongue until his next month’s expense claim, which he presented to the boss with the great one-liner – "Spot the overcoat!" (By the way, this may be an apocryphal tale as I have also heard another version involving a Time Life journalist, Moscow and a fur coat.)
Helping the underdog
In my experience, there is also an attitude towards helping the underdog. So in my field there has been a tendency for large corporates to be early adapters of new technology. The willingness of IT directors in the States to try new things using very small, almost start-up companies is good news for US technology, and corporate UK should note this!
But I have one major caveat about doing business in the US and that is their legal system. Legal actions that just would not happen here in the UK are commonplace. You see, the system favours the underdog with costs not awarded against the unsuccessful plaintiff backed up by an army of attorneys who will work on a contingent or success fee only basis.
The result is a plethora of legal claims ranging from topics such as sexual harassment, ageism and racism, to passing off actions for every conceivable trade name, directors’ liabilities for real or imaginary tort of every kind.
This is becoming a major problem for anyone doing business in the US so be warned – you need top US counsel from day one and don’t underestimate how many times you will be called to use them.
Michael Jackson is chairman of Elderstreet Investments, the leading technology venture capitalist which he founded in 1990. He is also chairman of Sage, the FTSE-100 accounting software group which he has been closely involved with for the last 20 years, since its unquoted days. Michael is an entrepreneur and legendary investor in his own right.
