Specializes in strategy, finance, M&A and governance for private and family businesses. Experienced Corporate Director. Kona Advisors LLC.
One of the key issues to understand when you own and manage your own business is the difference between working on the business versus working in the business. While most of your time is spent working in the business, the high-impact decisions you will make pertain to working on the business. Oddly, the time spent on these decisions is typically inverse to their importance.
To reinforce this point, consider the most important question: “Why are you in business?” Most owners don’t stop to dissect the question into its parts. What the questions is really begging is:
• What are your life goals, and how does the business help you to achieve those goals: financial security, happiness, family harmony, enjoyment of time well spent? You can make more money, but you can’t make more time.
• How does your business strategy enable you to achieve your life goals? The business is an asset, and it should be used to help you to achieve your life goals.
From that perspective, it is easier to define a process to help the owner achieve their life and business goals. Where the owner is today is Point A. Where they want to get to is Point B.
Once the two endpoints are defined, it is more straightforward to construct a road from A to B. Success is about perseverance and adapting to changes beyond your control.
Here are the steps to build a solid foundation for your highway to success:
1. Create an ownership strategy.
Develop a statement of life goals, and decide how the asset must perform so you can achieve your goals. These goals usually focus on financial security, happiness, ownership succession, management succession and family issues.
2. Create a business strategy.
Once you set performance metrics for the asset, then you should flush out the business goals and strategies that will produce winning metrics.
This is usually something like: I need to get the business to $X EBITDA (earnings before interest, taxes, depreciation and amortization) and sell it to achieve financial security. So how do we get to $X?
3. Use capital and talent to drive the business strategy.
All businesses need capital and talent to succeed. Private businesses are constrained in both areas. How much capital, and in what structure, do we need to fund the strategy? What talent is needed to execute the strategy?
4. Execute organic growth and mergers and acquisitions to fulfill the strategy.
It usually all comes down to how to grow the business. How much future growth will be organic, and what is needed to make it happen? If organic growth is not enough, then acquisitions need to be considered. If you need to make acquisitions, who are the targets, and how will you successfully acquire and integrate those targets?
5. Think about governance assessment and development.
While the focus needs to be on growing value, there also needs to be work done to manage risk. What governance structures are needed to provide oversight and perspective along the way? How will outside perspective benefit the business strategy? What is the system of controls being used? If the intention is to own but not run the business in the future, who is protecting the shareholders? If you need to develop a board, how do you define its mandate, select directors and run the board to add value to the business?
6. Take advantage of conflict resolution and mediation.
Conflict is inevitable in business. It is how you handle it that counts. So, what to do when people don’t agree? The biggest issues occur within the ownership group, then within management. If your governance system does not have these mechanisms now, then you will need to figure it out when conflicts arise.
Perseverance and determination have always been requirements for success, although they, alone, are not sufficient. A good plan, adequate resources and adaptability are required for success since the market is fluid and dynamic. A little luck never hurt either.
The goal is to have no regrets when you no longer own the business. So how do you get there? Understand that the decisions you make on the business are the ones that matter, and then drive the other decisions to make sure you get there. Sometimes it takes time to develop this perspective. But if you talk to enough people who have sold their businesses, this theme comes out time and again.