Do you remember these lyrics that Kenny Rogers used to sing: “You got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run …?” Even if you do know “The Gambler,” you probably didn’t know that Rogers learned it from a traveling singing group of former CEOs!

Executives struggle daily with the risks of running a business. Even in good times, CEOs may not know where their business is headed or which direction to turn next. Managers are whispering in their ear to do this, the board of directors is telling them to do that, and that little voice in their head is urging them to do something else. Oftentimes, they end up with the “strategy of the day”, which I call “strategy de jour.”

We can’t avoid gambling, because even if what we’re doing today is the right strategy, the world doesn’t stand still. Before we know it, the market has changed, the demographics of our target customers have shifted, or the political and economic environment has been altered. There may be new threats and opportunities out there, and our current strengths may become weaknesses, or vice versa. We have to anticipate and adapt to change, which forces us to constantly look at new strategies and new strategic options.

Smart companies understand this and are comfortable with it. They know that in today’s global economy, the right strategic bet can return higher payoffs more quickly than ever before, but that the wrong choice carries a higher risk of total failure. Betting big today could fundamentally reshape a market to their advantage, or quickly produce losses so huge it could throw them into bankruptcy faster than they can say, “Hit me!”

Can you relate? Are you gambling with your business strategy? Are you being forced to make a hasty decision among strategic options that haven’t been thoroughly evaluated? Following is a discussion of common strategic options that businesses have in the myriad of strategies available to them on the strategic roulette wheel.

Strategic Option: Sell or Merge

One of the most common strategic options is for a company to put itself up for sale or to merge with another company. To seriously consider that option, it’s necessary for the company to know what the business is worth. The highly scientific and technical answer to this question is … it depends. The value of a company depends on who is looking at it and for what reasons they are doing so. Lenders, for example, are interested in liquidation value. Investors want to know capitalized earnings value.

Potential buyers want to know the value of recent sales multiples for similar companies in your industry. And your insurance company wants to know the replacement value of your business.

“Value” means different things to different people, and for every reason to value a company there are as many ways to do it. In the end, the true value of a company is set in the marketplace. The answer to this dilemma is to start with a business valuation that’s prepared by an investment banking firm or by someone who does this for a living.

My advice to clients at this stage in the game is to next evaluate if it’s the right time to sell and whether the market conditions are in their favor. Is their market consolidating? Have there been many sales and mergers in their market recently? If so, what kind of premiums (over industry multiples) are being paid? The average premium on transactions over the past few years has been about 35% over market value. If the market is willing to pay at least that, I’d say it’s time to consider playing their hand.

I’d tell them to engage an investment banker to represent them at this point; someone experienced in negotiating for a premium price, the structure of the deal, and terms and conditions of the agreement.

Strategic Option: Invest / Grow

The second most common strategic option available to businesses is to invest and grow their business. The first thing to determine is how they want to grow --- new products, new markets, expanded customer relations, different distribution channel, etc. They should find out whether there’s an extraordinary market opportunity to capitalize on. Then, they need to determine if it’s better to“buy or build;” in other words, to capitalize on that opportunity by acquiring someone or building the capabilities internally.

Either way will require raising more capital. In the current volatile market environment, it’s true that unless you are a Fortune 500 company with a well-established history and market position, finding a venture capitalist to even sniff at your business is like looking for the proverbial needle in the haystack. And lenders are trying to cut their losses, upping the ante on their definitions of “risky,” so you can forget about going to your bank for any new debt financing right now.

While the capital markets have evaporated somewhat, venture money is still available for the right value proposition. To get an investor’s attention, you’ll need a solid and thorough business plan that tells a good story and includes credible financial statements. Venture money wants to see projected growth of at least 10 percent net income in five years. Don’t forget to include an established exit strategy in the business plan to allow the investor to liquefy their position. They typically are looking for a 20-40% return on their investment within a three- to seven-year horizon in a growthstage company, and two to four years in a later-stage company.

Strategic Option: Downsize and Refocus

We’ve seen many companies that have grown willy-nilly over the years by expanding into other product areas or markets, yet have never really understood the true value of those tentacles hanging off the core business. Then when a true fully allocated analysis of those business units is conducted, the executive discovers that they are not a value creator, but a value destroyer.

When faced with this strategic option, many of our clients have done an objective analysis of each business area (on a separate fully allocated basis) that quickly helped them make their decision. A rule of thumb is that if a business area is contributing at least 10 percent of revenue, it should be analyzed as a separate unit.

Unless there’s some key strategic reason for not doing so, if you discover some of those value destroyers in your product / service portfolio, liquidate them or downsize and re-focus … and do not waste any time doing so. The key to downsizing is to focus on your strengths. Develop a plan that returns the focus of your business away from the new expansion efforts back to the core business, if that’s where the value creators are.

Or you may need to focus on one of those “tentacles” that has more potential. We recently worked with a public company that discovered, after such an analysis, that their core business was slowly dying but that a new business unit had tremendous strategic potential. We advised them to sell the old businesses and pour their resources into developing the potential star. It was a gamble; a “bet the company” strategy that may have them running out of aces. But at least they will hit the wall at 90 miles an hour, instead of slowly dying by being nibbled to death by the ducks.

Strategic Option: Partnership or Alliance

Another strategic option is to accelerate growth through a strategic partnership or alliance --- a“make, buy, or rent” strategy. If your growth is stifled, it may be because you’re trying to reinvent the wheel or because it just takes a long time to grow each piece of business on your own. If you want to leapfrog the competition, it’s definitely easier to make one plus one equal three with a corporate partner or alliance.

Strategic partnering can make sense if you cannot afford either directly or indirectly to add resources, introduce a new product, or embark on a research and development project. Or it can help reduce expenses or expand distribution channels. In any of these cases, a strategic partner can be a logical, low-risk, low-dollar way to grow.

Adjust your thinking so that when you evaluate creating a new division, embarking on a new marketing plan or sales campaign, or finding ways to add more value, you look beyond internal options to include outside partnering opportunities. Compare the returns on investment with partnering versus doing it all by yourself. Especially if you can shorten time to market, you may be better off with a new partner.

Selecting a strategic option is not for the meek or weak, because there is a fair amount of risk and gamble. So if your risk level (and that of your board’s) is akin to playing the quarter one-armed bandits (slot machines) at the local casino … you might want to take a pass on strategic options!

The least I can share with you is the importance of not taking the roulette wheel approach to selecting strategic options. Running a business is enough of a gamble anyway, and it’s best to thoroughly evaluate your options before deciding on a direction. After all, it should be more than a gut feeling that tells you when to hold ‘em … when to fold ‘em … when to walk away … and when to run ...