Updated: Jan 22, 2021
Do you ever just get in your car and drive with no plan, no destination in mind, and no idea about what dining or fuel options will be available wherever you end up? Unless you just need a mental break from the world or have a fun sports car, the answer is generally “no.” We get in our cars knowing we are going to the grocery store, to a restaurant, or we are driving to a destination for a vacation. So, for something as temporary and mundane as a car ride, we have a plan and a purpose. We know where we are going and why we are going.
However, there are tens of thousands of small and mid-sized business owners who treat their businesses like a car ride with no destination. They go to work every day and answer e-mails, go to meetings, deal with production issues, hire people, work on company benefit plans and negotiate leases for their buildings. Many make a good living doing this, but there is never enough thought given to what the final destination might be, nor how to get there.
Imagine yourself walking away from your business for the last time - because that will happen (unless you have to be carried out because you built a business that couldn’t run without you!). What would give you the most satisfaction as you take that last walk out of the building? How would an ideal exit look to you? What kind of legacy do you want to leave? The most successful business owners I have encountered have two key questions that drive every decision they make relative to their business:
What is the mission of my business?
What is my end goal for the business?
Your mission could be as simple as helping automotive OEM’s minimize recalls because of your commitment to quality as a supplier, or as intrinsically valuable as improving patient safety or helping children walk. But whatever it is, there needs to be a mission that makes you want to get to work every morning and your mission should guide every decision you make. Constantly ask yourself, how does this investment? this hire? this new offering? etc., better help me fulfill my mission. If it doesn’t, then don’t do it.
Having an end goal is why private equity firms are so successful. While most of their end goals are generally financially driven, they know how long they want to hold an asset, they know when they want to use one of their portfolio companies as a platform and acquire others to integrate to the platform, they know what they want their ultimate EBITDA number to be and the multiple they want to achieve to resell the companies they acquire. Not that you need to be quite that specific as a business owner, but you should at least have an idea of the time horizon, what you would like your revenues to be and how you envision exiting your business. Again, all significant business decisions should be grounded in your end goal and whether those choices will help you achieve your goal or distract you from it.
“If you fail to plan, you are planning to fail”
While this quote is old and sometimes a bit cliché, it was said by one of the greatest minds in the history of our country and it timeless. Your business is likely the most valuable asset - or at least has the potential to be - of any that you will own throughout your life. The exit event that you will inevitably have at some point will either maximize wealth for you and your family, as well as possibly your employees, or it will be minimized because you are unprepared. And make no mistake, you will have an exit event! Whether you get approached by a private equity firm or a strategic buyer, have a personal or family health event, or just wake up tired one day and decide you want out, you will exit your business. Everyone in the history of the world has…one way or the other. Unfortunately, some business owners are forced to exit their businesses by simply closing their doors because they are unprepared and have built a business that cannot survive without them. Don’t be that owner!
Having a plan doesn’t mean you have identified the specific date, or even year when you will exit your business. It means you have developed and documented a long-term, multi-year strategy for your business that will serve as your guidepost and have established shorter-term goals and priorities that will support your strategy. Your short-term goals should be broken into annual, quarterly, and monthly items that you will have your leadership team and organization accomplish. Doing this over time with a high degree of discipline will ensure progress toward your end goal. Having a strategy that includes both financial and non-financial goals will make you much more intentional about how you run your business. Lack of a strategy causes business owners to fall into at least two traps:
Surrendering to the temptation to “do stuff for money”
Focusing exclusively on top-line growth with no regard for profitability
Business owners typically start their businesses with an idea that fills a market need in a unique way. Because of the need to build revenues quickly and a desire to be responsive to individual customer requests, the owner will often get distracted from the original mission and find themselves with a business that has an unrelated, non-strategic list of products or services that it sells, which won’t be attractive to potential suitors. Similarly, building top-line revenue in a way that doesn’t maintain at least industry-standard margins just creates more administration and expense and also will be unattractive to potential buyers.
Having a well-defined strategy will help you invest your time and resources in those things that are consistent with the attainment of your goals and, just as importantly, stop investing in those things that are not aligned with your goals or value builders of your business.
“My enemy is an animal and in order to conquer an animal, I have to think like an animal.”
Carl the groundskeeper - Caddyshack
Empathy is one of the most powerful tools to use in business, and in life. Being able to get inside the mind of your customers, targets, and competitors to understand their needs, challenges and motivations will make you a much more effective business leader. Likewise, putting yourself in the mind of a potential buyer or investor will help guide your decisions and put you in a much more favorable place when the timing is right for your exit event. Anticipate the motivation of potential buyers and the questions they will likely ask in the diligence process and how your answers might either enhance or degrade, the value of your company. Can you explain how your products or services complement each other and the strategic reasons for tolerating lower profitability on certain offerings? Do you even know how much profit each product or service you sell creates for your business? Would you be able to succinctly articulate your organization’s value proposition and how you fit a market niche in a way that gives you a competitive advantage? What are you doing to minimize your risk of losing existing customers, and how are you keeping your revenues from becoming too concentrated with your biggest customers? It is highly likely that these questions, and many more, will be asked through the diligence process. If your answers don’t instill confidence that you are thinking strategically about your business and being thoughtful about taking advantage of growth opportunities while managing risk, you will likely be putting yourself in a much worse position when the opportunity to exit arises. Know the levers that either build or destroy value and build your business accordingly!
“Look, if you had one shot, or one opportunity. To seize everything you ever wanted in one moment. Would you capture it or just let it slip?” ― Eminem
You don’t get a second chance to sell your business. There are no “do-overs” and you can never predict when an opportunity will arise, so you have to be prepared. There are way too many business owners who get comfortable with their lifestyle businesses. The business generates cash and a nice income that affords the owners the ability to live the kind of life they desire. While this may be effective to pay the bills, it creates two fundamental issues:
Decision making becomes very tactical and focused on the issue of the day
Lifestyle businesses almost never lead to strategically building value or creating an asset that will be sellable and allow the owner to maximize the exit opportunity
Not that it’s a bad thing to drive growth and make a nice income, but the income that can be generated pales in comparison to the business value that can be achieved in an exit. Additionally, over time you will find that preparation for an exit will drive an even higher level of owner income, as well as value, because you are running your business with a high level of intentionality.
When you have invested years or, in some cases, decades of your own blood, sweat, tears and money in your business and you just have one shot, don’t let it slip away!
Set goals, build a plan and let the plan be your guide for key decisions
Start thinking like a buyer, understand value levers and get help doing so if needed
Be mindful of the fact that you have one shot at exiting your business. Maximize it!
And to quote a fourth American icon, “Nobody ever said it would be easy, they just promised it would be worth it.”
ABOUT THE AUTHOR
Greg Stanley is the founder and president of Accelerant Consultants, a firm that helps small and mid-sized business owners optimize their revenue functions in a way that maximizes valuation. Prior to launching Accelerant Consultants in 2017, Mr. Stanley spent over 25 years building marketing and sales organizations, developing and executing organizational strategy and serving in executive leadership roles for both small and large organizations. Accelerant Consultants has helped dozens of companies build more effective go-to-market strategies and align company resources to drive growth, profitability, new account acquisition and prepare for exit events. Contact Accelerant Consultants at email@example.com or visit the website at accelerantconsultants.com.