Tag: leadership

Cool Tech Hot Mess: Tempnology — An Update

Pixabay at Pexels

The First Circuit Court of Appeals recently issued another opinion (the court’s third)  in the long running saga of  Tempnology LLC (now known as Old Cold, LLC).    The opinion, Mission Product Holdings, Inc. v. Schleicher & Stebbins Hotels, does not blaze any new legal trails.  Rather, it upholds the entry of an order granting a secured creditor relief from stay to foreclose on certain collateral. 

Read only for  its holding — the decision is unremarkable.   But when read as part of the long history of litigation rooted in a  deal described by the Supreme Court with some understatement  as “a licensing agreement gone wrong”  — the value of the decision emerges.  Indeed, as noted in my post earlier this year,  Cool Tech — Hot Mess: Tempnology a Year After SCOTUS Argument, litigation over fallout from the deal has lasted years longer than the deal itself.   If such outcomes can be avoided, then this blog’s objective of advocating for  forward thinking deal-making will be met. 

The Debtor, the Lender and the Licensee

The litigation relates to disputes involving the following three parties:   

(i)  Tempnology — the  Debtor which manufactured  “Coolcore” branded clothing and accessories designed to stay cool when used in exercise;

(ii) Schleicher & Stebbins Hotels — the Debtor’s secured lender,  which also purchased the Debtor’s assets at a bankruptcy auction conducted under Section 363 of the Bankruptcy Code; and 

 (iii) Mission Product Holdings, Inc. –the Debtor’s trademark  licensee, which bid for the Debtor’s assets at the auction but lost out to the secured lender.    

Prior First Circuit Decisions 

The First Circuit’s  prior opinions were both issued in  January 2018.   In the first decision, the First Circuit rejected  the licensee’s attempt to unwind the sale and have its  own bid recognized as the winner.   The First Circuit ruled that the sale had already closed and the lender had been deemed “a good faith purchaser” entitled to protection under section Bankruptcy Code 363(m) from having the sale unwound.  

In the second decision, the First Circuit held that the Debtor’s rejection of the applicable trademark license agreement left the licensee with only a pre-petition damages claim and no further rights to the licensed rights.  The licensee appealed that  decision to the United States Supreme Court, which reversed in an opinion issued in  May 2019  —  holding that a debtor-licensor’s rejection of a trademark  license did not deprive a licensee of  rights provided for in the license. 

Relief from Stay Litigation 

 As noted in the  prior post, the Supreme Court decision did not bring an end to  issues pending in the bankruptcy case. Specifically, proceedings continued  concerning the rights of the secured lender to relief from the automatic stay with respect to certain remaining collateral in the estate excluded from the sale. 

On that issue, in the fall of 2018, the Bankruptcy Court held that the Supreme Court review of the license issues did  not preclude the Bankruptcy Court  from granting relief from stay to the secured lender.   The  licensee opposed the relief then  appealed the order to the Bankruptcy Appellate Panel (BAP) which affirmed in a decision issued June 18, 2019.   The licensee appealed that decision to the First Circuit in July 2019.  

First Circuit’s October 2020 Opinion

In its decision issued this week, the First Circuit affirmed the order granting the secured lender relief from stay. 

The First Circuit began by confirming that the  licensee’s appeal was not moot and that the Court possessed jurisdiction to decide the appeal.   The Court  then reviewed the merits of the licensee’s argument  on an abuse of discretion standard.   On three fundamental points raised by the licensee, the First Circuit left little doubt about its ruling.  Specifically, the Court: 

      • characterized as “poppycock” the licensee’s principal argument that the secured lender waived its liens, either implicitly or explicitly, by virtue of its participation in the bidding process;        
      • concluded  that there was “no question” that the lender held valid liens in excess of the value of the debtor’s  remaining assets and that the lender  thus satisfied its burden of proof needed to prevail on a motion for relief from stay; and        
      • rejected the licensee’s contention that the Bankruptcy Court abused its discretion by refusing to grant discovery and a full evidentiary hearing before granting relief from stay — on this point the First Circuit determined there “clearly” was no such abuse and that the licensee’s contention that the secured lender “waived its liens made no sense for a slew of  reasons.” 

Looking Ahead

Although the First Circuit’s opinion should bring to a close the dispute over the relief from stay issue, the bankruptcy case remains open.   The licensee previously filed an amended proof of claim and an administrative expense motion seeking damages for both the pre-bankruptcy and post-bankruptcy period. 

Last year, the parties agreed to defer any action on the damage claims pending the First Circuit’s decision on the challenge to the relief from stay order.   With the First Circuit ruling now issued, the parties will need to evaluate  whether to exercise rights previously reserved against each other.  

While that plays out to an inevitable conclusion at some point, others entering into business agreements of any type should keep the Tempnology situation in mind when crafting an appropriate agreement at the outset of a deal as well as strategically overcoming  obstacles that  arise.  

 

Thinking Strategically About Business Outcomes

In  The New Boardroom Imperative: From Agility To Resilience Julian Birkinshaw, (Professor of Strategy and Entrepreneurship, London Business School) discusses the critical issue of strategic resilience –  the ability  “to make smart choices about the scope of business activities in the face of uncertainty.”

Recent posts here have outlined key strategies for tackling business challenges and provided a sampling of resources helpful in developing an effective plan.   See Five Keys to Dealing Effectively with Disruption and Resiliency Resources.

This post “zooms” out (the word choice clearly reflecting too many videoconferences) to focus on three business outcomes in a time of disruption. What are those three outcomes?  Fundamentally:  reorganization, sale or liquidation.   There are many paths to reach any of these outcomes – including in-court and out of court avenues.   Each outcome, of course, has significant consequences.

Although some businesses strategically implement a sale or a liquidation on their own terms, many find themselves dealing with those outcomes only because the opportunity to achieve a reorganization has evaporated.  Indeed, the inability to reorganize can lead to a sale or liquidation – voluntarily or involuntarily.  Resilient business leaders work to avoid such results by strategically assessing higher value reorganization options and then working to implement successfully.

What options exist in aid of reorganization?  In the United States, the federal law governing business reorganizations is Chapter 11 of the United States Bankruptcy Code.  Unfortunately, over the years, Chapter 11 has proven to be an imperfect mechanism for allowing small or medium sized businesses to reorganize.   Last summer, Congress attempted to address that situation by passing the Small Business Reorganization Act of 2019 (SBRA), which became effective in February 2020.

The SBRA adds a new subchapter V to Chapter 11 with the goal of making business reorganization more affordable and more achievable for the nation’s small businesses.  Specifics about subchapter V are detailed here.  The Coronavirus Aid, Relief and Economic Security Act (CARES Act) passed yesterday expands the availability of  subchapter V by making its provisions applicable to a broader range of businesses.  Specifically, as amended, for the next year the debt limit for a small business eligible for relief has increased from $2,725,625 to $7,500,000.  Of course, businesses with debt above that limit can still seek relief under the non-small business provisions of Chapter 11.

Federal bankruptcy relief is just one tool in the toolbox for seeking to implement a business restructuring — and not a perfect  tool.  Other options also exist both in and out of court.  For example, out of court negotiations or mediation with key constituents towards new agreements can be remarkably effective as described here.  Be sure to think critically before selecting any particular tool as each has advantages and disadvantages.   As the saying goes — once the hammer is in hand, every problem begins to look like a nail.  Be sure to act proactively to take advantage of the utility of the most value-preserving and value-enhancing tools while time exists to do so.  And be on guard against the possibility that a key business partner may start wielding a tool that could have significant implications for your own business.

Understanding the options for implementing a successful business reorganization should help in thinking critically about your own business – and (just as importantly) the businesses of your key partners.  Ultimately, part of the ability to make smart choices about current and future business activities in the face of today’s uncertainty relies on such an informed understanding.

Five Keys to Dealing Effectively with Disruption

On March 10, 2020 the MIT Sloan Management Review published “How Leaders Delude Themselves About Disruption” as part of a series on Disruption 2020 published in memory of Clayton Christensen.

The article, authored by Scott D. Anthony and Michael Putz, is focused on the challenges faced by companies experiencing the effects of disruptive innovation.  As articulated by Christensen (and others) in a 2015 Harvard Business Review piece, “disruption”  in this sense describes the situation “whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.”  More specifically:

[A]s incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success.

The MIT SMR article notes that disruptive innovation has up-ended many businesses such as Eastman Kodak, Blockbuster, and Toys R Us.   In the authors’ view, leaders should take affirmative steps both individually and organizationally to “confront powerful self-deceptions” that have impeded action to avoid disruption.

For example, the authors note various delusions that afflict incumbent business leaders including:

        • The “we’re safe” delusion:  to demonstrate this point, the authors point to the April 1, 2008 interview of BlackBerry’s co-CEO dismissing the introduction of the iPhone.  BlackBerry’s revenues have fallen considerably since that time of course.
        • The “it’s too risky” delusion:   in support of this point, the authors describe the significant and underappreciated risk of not investing boldly in innovation compared to the limited risk of investing and being wrong — summing up by noting that “companies increase risk by not taking risk.”

The article concludes by imploring leaders to “focus more on mindsets, awareness, and inner capacities to combat basic biases” in navigating the challenges posed by disruptive innovation.   In short – mindfulness for both leaders and their organizations.

Just one day after the article’s release, the World Health Organization declared COVID-19 a pandemic.  The public health disaster at the heart of that announcement has caused and will cause disruption for many industries and companies – not disruption caused by innovation of new entrants – but disruption nonetheless.   And the need to deal effectively with that disruption is imperative.     Here are five keys to dealing effectively with disruption in the current distressed circumstances:

        • Avoid Denial

A common expression in the restructuring world (and other places) is that “denial is not just a river in Egypt.”   Another is that “hope is not a strategy.”   When dealing with disruption, do not underestimate the scope, potential magnitude or possible implications of the situation presented.   Rather, facts must be grasped, scenarios mapped out, options identified, and alternatives understood.    Because time is at a premium, it is critical for leaders to focus on the task at hand and not debate the “fairness” of the situation, how things “should be” different or “could be” different if some uncontrollable factors emerged.   Denial is pure delusion akin to the “we’re safe” falsehood described above that can put an incumbent at risk through disruptive innovation.  Get the facts, absorb them and begin to map out a strategic response.

        • Attack the Problem not the People

A company experiencing disruption can be tempted to focus on the people involved in the situation as opposed to the problem at hand.  Unfortunately, that focus can quickly turn negative as the company conflates the problem with the people and ends up attacking both – thus compounding the problem and the chances for creating an acceptable path forward.   Your enemy is the problem.   And that problem should be viewed as the common enemy of both you and the other party.   Navigating disruption means knowing how to work effectively with others (even others who may be disagreeable) to achieve what you desire  cost-effectively in a way that is acceptable to the other side.  More discussion of this topic is set forth in this article published in CFO Magazine prepared last year.

        • Assistance – Obtain it

The best time to obtain assistance in any situation is when time remains for those rendering aid to have an impact.   Wait too long in any number of situations and would-be helpers are rendered useless.  Of course, it can be challenging to seek assistance and daunting as well to know where to turn.  But often an essential component of “avoiding denial” and “attacking the problem not the people” is lining up experienced advisors who can help navigate the path.   Unfortunately, not all would-be helpers provide much help at all.  Some will simply exacerbate a situation – causing unnecessary delay, adding burdensome cost and failing to move a situation forward.   That is not assistance – and should be avoided at all costs.   Using a trusted network, determine reputable people that might be able to help, vet carefully, listen to the perspectives offered and ensure you fully understand all options and alternatives for moving forward.

        • Accelerate Communication

Communication is fundamental in navigating disruption.   That means communication with all key constituents including employees, vendors, suppliers, board members, investors, lenders, landlords, partners and anybody else with a relationship with the company.   Communication should be concise, honest and regular.  The purpose of communication is not just to convey information but also to convey credibility.   When a company fails to communicate to key constituencies, relationships suffer not only from a lack of information but also from a lack of attention.   Relationships are critical and deserve your investment of time and energy.  If not quite sure what to say, seek assistance from informed sources.   Do not deny the need to communicate or think that since certain parties have not reached out they must have all the information they need.  Own the responsibility to communicate.

        • ·Appreciate Cash Position

Nothing spells disruption more than dwindling cash.   Of course, cash is essential to keeping the gears of any business moving and its absence can and will bring operations to an immediate halt.   Some companies dealing with disruption will not understand their cash position or will deny the reality of threats to cash.  Avoid that scenario.  If necessary, seek assistance in developing accurate and credible cash projections.  Take steps necessary to ensure the company’s runway is well supported by available cash.   If issues exist around availability, then this reality must not be denied but rather factored into a critical problem to be solved promptly with the help of informed assistance through effective communication with key stakeholders.  Cash is truly king and shows no sign of renouncing that royal title.

The consequences of failing to deal effectively with disruption are severe.   Whether disruption is caused by innovators entering into the market or a pandemic of significant scale, leaders must avoid delusions about the potential impact of disruption.   The five keys identified above should help in building resiliency and dealing effectively with the disruptive effect of today’s economic reality.

Building Resilient Businesses — Fall 2018 Collaborations

As noted on the About page, this blog focuses on essential aspects of building resilient businesses:   protecting assets, navigating change, solving problems, and getting deals done effectively.

Key components of resiliency are awareness and openness to change.  Denial is absolutely not a strategy.   Resilient business keep  pace with innovation, think strategically,  exercise sound judgment, rely on core values  and build  effective teams.

This Fall has offered numerous opportunities to connect with others on topics at the intersection of technology and  finance – each fundamental to any resilient business.   This post  highlights a few recent and upcoming events/writings  and provides links to those interested in exploring further.

  • In late September, I was pleased to attend a TMA Global Executive Board meeting in connection with the 2018 TMA Annual Conference.   Plenty  of interesting discussions there — but I particularly enjoyed the keynote from Frits van Paasschen, who held the CEO position at  Coors then Starwood and several senior positions at other global companies before that.   He  authored The Disruptors’ Feast — which carries the apt subtitle “How to avoid being devoured in today’s rapidly changing global economy.”   Based on his remarks, I very much look forward to reading the book.
  • This summer, I received an invitation from the American Bar Association Law Practice Division to serve on the board of its Legal Technology Resource Center (LTRC).   The LTRC is focused on  providing legal technology guidance and resources for the efficient and effective practice of law.  Guidance is provided through a technology blog, regular webinars,  various publications and a dedicated website — Law Technology Today.  As  technology continues to evolve rapidly, I look forward to working with the LTRC team who I enjoyed meeting earlier this month.
  • Coming up next week on October 23,  I will join Silvia De Sousa of Thomson Dorman Sweatman LLP in Winnipeg and Kiriakoula Hatzikiriakos of the National Bank of Canada in Montreal (who recently published Secured Lending in Intellectual Property) to present a webinar sponsored by the Canadian Bar Association focused on Secured Transactions in Domain Names & Websites  As has been proven time and again, websites and domain names can be sources of value for companies and creditors — but critical to unlocking that value is successfully navigating various legal issues and understanding cross-border implications.
  • Each year, Massachusetts Continuing Legal Education hosts a New England Bankruptcy Law Conference.   This year, I will join Adrienne Walker from Mintz and Lindsay Zahradka Milne from Bernstein Shur on a business panel focused on trade creditor issues.  With stories of significant trade creditor issues emanating from the Toys R Us case and similar situations, a discussion focused on  practical tools for trade creditors is timely.
  • Finally,  the 2018 Norton Annual Survey of Bankruptcy Law  was published this Fall.  The book contains my chapter analyzing technology and intellectual property issues  in distressed circumstances — including a discussion of the Tempnology case which was the subject of  an earlier blog post here.   Since that blog post in early September,  activity before the Supreme Court has continued with petitioner Mission Product Holding filing a reply brief on September 25 arguing that the High Court should grant review and resolve the question of whether rejection requires termination of a licensee’s rights.   Stay tuned.

In sum, the Fall has offered some interesting opportunities to collaborate with others in  thinking through effective solutions for companies dealing with rapid change.   Technology, finance, and disruption are sure to remain constant partners going forward.

All Inn

The Pine Street Inn recently held a graduation ceremony to honor individuals who have completed the Inn’s job training program.  Both the Boston Globe and Boston Herald captured photos.  The Inn has been offering the training program for 20 years with approximately 200 people enrolling this past year.   Those completing the program have the opportunity to participate in a graduation ceremony like the one recently held.  For many, it is the only type of  commencement ever celebrated.

The Inn’s website includes additional information about the jobs training program — together with other targeted initiatives  including housing, street outreach, veteran services, recovery services, homeless court assistance and advocacy.  All these programs are in support of the Inn’s mission of partnering with homeless individuals to find solutions.

Last year, I was fortunate to attend a breakfast event for the Inn where I heard a beneficiary of the Inn’s services speak.   The story shared was quite impressive.  Simply put, the support provided by the Inn, combined with the individual’s  hard work and dedication,  allowed her to move forward with dignity and hope.  A short video from that event posted online called “Many Roads Home” tells the story of how the Inn is working to get people off the streets, out of shelters and into housing.

Homelessness is an intractable issue and obviously not one that can be solved with any easy answers.   The good work of the  Inn (and its long-time president Lyndia Downie and committed board, officers, staff, sponsors and supporters) is a shining example of resiliency, helping people navigating change and finding solutions.  For those reasons, I thought this short post about the Inn fit nicely within the theme of highlighting forward thinkers and problem solvers.

In that regard, it is worth noting that this Spring the Globe ran an article about Richard Ring, whose 48 year-long career in advocating for homeless issues includes many years leading the Inn earlier in his career.  At a time when people’s perception of homelessness was quite different, he was instrumental in building awareness, helping to set strategy, and exhibiting ceaseless devotion to the topic.

Perhaps someday, there will be no need for the Inn.  In the meanwhile, those served and the greater community can be very grateful.   The Inn details out numerous ways to donate in support of its mission at this page and other ways to support this mission and get involved at this page. 

 

 

 

 

 

 

 

 

 

 

 

 

Paying it Forward: Helping Veterans Build Successful Small Businesses

Lee Goldberg is a former Army Officer who served in Vietnam. He is also an experienced business executive who has guided hundreds of companies through a variety of financial, operational and governance issues.   Because Lee understands the value of a professional network, decades ago he helped start the Northeast Chapter of TMA and served as one of the chapter’s initial presidents.

TMA is global non-profit organization numbering more than 8,300 members in 55 chapters. TMA professionals come from a variety of business disciplines. Members help companies improve performance, manage disruption, navigate change and enhance value.  Last year, I had the privilege of serving as the Northeast TMA chapter president — stepping into a role Lee created and held many years before. This year, I began serving on TMA’s Global board.

Over the past few years, Lee has worked hard to establish and build an independent non-profit enterprise called VETRN — Veteran Entrepreneurial Training and Resource Network.  VETRN is dedicated to helping military veteran entrepreneurs succeed in growing their small businesses.  In addition to commending Lee’s forward thinking and hard work  in making his vision a reality, this post is intended to help raise awareness of the program enabling others to benefit from it.

Coming Home

Lee returned home to Boston from a year-long deployment in Vietnam in the late 1960’s to an unwelcoming world. Despite holding both an undergraduate business degree from Northeastern University and a MBA from Boston College, Lee’s tour of duty had put him off track for employment opportunities.

Determined to find his path, Lee wrote application letters to many area businesses. Eventually, he heard back from John Quincy Adams, a Senior Vice President of  John Hancock Life Insurance Company, and a descendant of two of America’s earliest presidents. As Lee discovered only later in life,  “JQ” extended an employment  opportunity in appreciation of Lee’s military service and “JQ”‘s own personal military experience – a moving story Lee shared in this interview at the 1:45 mark.  In short, JQ “paid it forward” resulting in Lee commencing work in the company in the fall of 1968.

The Vision

Lee knew that military training provided veterans with many invaluable skills — dedication, commitment and perseverance to name a few.  But he also knew that military training did not necessarily provide business-focused training, mentorship opportunities, and ready access to a professional network.

Lee knew the importance of such resources in leading companies to successful outcomes and envisioned a program that could provide these essential items, free of charge, to any military veteran (or family member) responsible for running a small business.  Lee shared his ambitious  vision with others who provided invaluable encouragement, assistance and guidance. And he made it his mission to succeed.

The Program

In building the program, Lee focused on forging partnerships with others.  For business education, VETRN partners with Interise, a Boston based national nonprofit, which developed and administers the highly successful, award winning “StreetWise MBA”program in more than 80 locations across the country on behalf of the Small Business Administration. VETRN  now holds a  license to teach the program exclusively to veteran cohorts in New England.  Those enrolled into the program commit to attend thirteen sessions covering topics such as strategic growth goal setting, financial statement analysis, positioning a business within a competitive landscape, sales strategies, accessing capital and developing a three year growth plan.

Each program participant is provided an industry or financial mentor at the outset. For mentoring and networking, VETRN partnered with the Northeast Chapter of TMA to tap the expertise of professionals including those who had personally served in the armed forces, had family members serving or  those just looking to give back as a means of thanking veterans for their service.

Lee achieved the objective of offering the  VETRN program at no cost by enlisting financial sponsors (listed on the VETRN website) from his own vast network to cover all program costs.  The website also provides information about the organization’s dedicated board and advisors who have been instrumental to supporting Lee’s founding vision.  Marie Shirley, who serves as Executive Director of TMA Northeast, provides invaluable support as program manager for VETRN.

The Results

The impact of the program is best understood by listening to statements of those  who have gone through it.  The interview noted above and other videos and materials on the VETRN website includes first hand  testimonials from participants who express appreciation for the education, mentorship and networking access they experienced as part of the program. Program graduates often speak of business growth leading to the need for more employees – with military veterans of course often highly desired to join as team members.  By creating a program to pay it forward, Lee has enabled others to do so as well.

The Future

The success of the program has not gone unnoticed. In a 2017 celebration in Cambridge, the Massachusetts SBA awarded Lee with the  District Director’s Award for founding VETRN and his  “outstanding contribution to the entrepreneurial success of veterans and small businesses throughout Massachusetts and New England.”  I was pleased to attend along with many others.

The national SBA based in DC  invited VETRN to submit a proposal to rollout the program to other locations. The SBA approved the submission for a pilot project but unfortunately has not yet approved funding. In the meanwhile,  VETRN is now actively seeking private grant funding in order to roll out to other locations in New England.

The next class of VETRN in the Boston area starts in the Fall of 2018.  The class is filling but space remains. Detailed information and applications can be found on the VETRN website. Know a military veteran (or the family member of one) running a small business in Massachusetts, Rhode Island, New Hampshire or Maine with a  demonstrated desire to grow the business? Point them to the site and have them fill out the application – it is an easy way to pay it forward.