One of the first things business owners ask me after learning that Go Beyond LLC specializes in Business Exit Planning is: “What do I need to do in order to sell my business?” There are so many ways to answer that question! Christopher Snider, CEO of the Exit Planning Institute, subtitled his book Walking to Destiny (2016): “11 Actions an Owner MUST Take to Rapidly Grow Value & Unlock Wealth.” John Warrillow’s book, Built to Sell: Creating a Business That Can Thrive Without You (2010), contains 17 tips and 8 steps. Having spent more than ten years learning about, living in, and writing about the Far East, I couldn’t help but absorb some Eastern concepts into my way of thinking. In the spirit of Zen simplicity, I offer this answer: reinvent your business.
I know that’s easier to say than to do. Only about 20 percent of owners will successfully reinvent their companies to the point that they are salable. A married couple I used to work for recently sold their Government Contracting company. Not long after we parted ways in 2011, their major overseas operations subcontract began to shrink and ended in 2013. Their annual revenue plummeted from nearly $40 million to less than $5 million. Over the course of four years they reinvented their Language Services and Intelligence Training company into a Navy Engineering company, revamping their core processes, management structure, and culture along the way. The end result was a salable company with over $12 million in annual prime contractor revenue. My friends accomplished this without much outside help. However, for most business owners I recommend finding a Certified Exit Planning Advisor (CEPA) to help you reinvent your business so that you can be part of the 20 percent who successfully sell their business.
The only constant is change
Businesses that want to remain relevant, vital, growing or even just stay in business must learn to master change. The ancient Greek philosopher Heraclitus of Ephesus helped shape Western culture’s understanding of change as an essential law of nature. He is quoted as having said, “Everything changes and nothing stands still.” He also wrote, “You could not step twice into the same river.” We’ve all experienced this constant change on many levels. I have watched my two children grow into responsible adults living independent lives, and now I’m witnessing the rapid changes in my new grandson. On a grander scale, I’ve seen a world system based on the competition between two super powers morph into a disorderly and dangerous multipolar milieu of super power wannbes, failed states, and non-state actors. Change is also a constant in the business world. Technological advances offer new ways to handle old problems and make new business models possible, while jobs that were once key parts of the economy disappear.
Intentional transformation, aka. Reinvention
Mastering change means being intentional about transforming your business from what it is today into what it needs to be in order to remain a successful, thriving business. According to February 2017 McKinsey & Company report, today’s market rewards change and punishes standing still. “Companies must be open to radical reinvention to find new, significant, and sustainable sources of revenue.” In order to take advantage of a new technology or to defend against a disruptor, it is often necessary for a business to reinvent the customer value proposition that forms the heart of its business model. With a new value proposition come adjustments to the profit formula and core processes. One prime example of this kind of reinvention is Apple’s transformation from a computer manufacturer into a cultural brand using the iPhone/iTunes ecosystem.
For small and midsize businesses, getting owners and their companies ready from a change in ownership requires reinventions in personal, financial, and business arenas. Owners have to imagine in detail what they want their lives to be like after a liquidity event. Their advisors must help them to discover the current market value of the business, to understand the gap between that value and the financial requirements of the owner’s envisioned life after ownership, to cast a vision of a best-in-class business that will be salable even in a buyer’s market, and to keep them on the path of turning that vision into reality.
Three Steps to Reinvent Your Business
Step 1: To thine own self be true, i.e. Play to Your Strengths. The first and most important step in reinventing your business is self-examination. You must arrive at a deep understanding of yourself and the people who make up your team. As the leader you should understand your own personality type, strengths, and weaknesses; as well as the personalities, strengths, and weaknesses of your people. Don’t spend a lot of time trying to fix your weaknesses. Play to your strengths and surround yourself with people who are strong in areas where you have challenges.
Step 2. The Right People. In his book Good to Great (2001) Jim Collins wrote, “The executives who ignited the transformations from good to great did not first figure out where to drive the bus and then get people to take it there. No. they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.” We covered this topic in detail in the July 5, 2017 blog post entitled The Right People. The right people are not copies of yourself, they are complementary to you and each other so they can become a high performing team.
Step 3. The next step in reinventing your business is to figure out what the business does best and to focus your efforts on that. Many small and midsize businesses try to be all things to all customers. I once worked for a company that acted like the word strategy was spelled O-P-P-O-R-T-U-N-I-T-Y. They were Information Technology generalists, with an unofficial motto of “We’ll walk their dog if they will pay our rates.” They wanted to be seen as thought leaders, but the market branded them as a commodity IT company. An ancient Greek maxim states, “A fox knows many things, but a hedgehog knows one big thing.” Collins built upon this saying when he developed the Hedgehog Concept: “a simple, crystalline concept that flows from deep understanding about the intersection of … 1. What you can be the best in the world at …, 2. What drives your economic engine…, and 3. What you are deeply passionate about.”
In Built to Sell, John Warrillow’s parable about reinventing a struggling firm into a salable business, successful serial entrepreneur Ted Gordon gives struggling business owner Alex Stapleton this critical piece of advice: “Don’t generalize; specialize. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.” There are many more steps in the journey of reinvention, but if you want to be able to sell your business, 1. you must figure out your strengths, 2. build a team of the right people and then3. figure out what that team is really good at doing – and do that one thing better than anybody else.
Don’t fear the journey
A few weekends ago, I was visiting my mother on Long Island. One of Mom’s friends, a woman she’s known for many years and with whom she now attends grief counseling, joined us for supper. This woman grew up dirt poor in New York’s Spanish Harlem, worked her way through college and graduate school, and still works as a family and youth counselor. We talked about the changes in my hometown of Lake Ronkonkoma, the choices I made that led me to escape the neighborhood via enlisting in the Army, attending West Point, and having a somewhat unconventional military career. I commented that, when I left my parents’ home in 1978 at age 17, I could never have predicted the twists and turns my life would take. She asked questions about how I made life and career choices. After I replied, she suggested that the decisions had mostly been good ones because I had mostly remained true to myself. She also pointed out that, although my goals changed at different points in my life, I did have clear goals and they propelled me forward on my journey. Then she said, more to yourself than to me, “Don’t fear the journey.” She explained that those words have become her motto; she even has a sign in her office inscribed with that admonition.
Business ownership, like life, is a journey. As a business owner, who face many forks in the road, many sharp turns, obstacles, difficult climbs, chance encounters, dangers, and pit falls. There are many opportunities, some turn out to be rewarding, some not so much. Some business owners will find a comfortable spot, dig in, and survive for as long as possible. Many others will take each turn as it comes, adopt the latest trends, be part of the pack slugging it out on the bloody red battlefield of competition, win some and lose some, and end with little to show for it. These two groups together probably account for 80 percent of small and midsize businesses. The successful 20-percent of business owners, even if they didn’t begin their company with the idea of someday selling it, had a vision of what they want the company to become. They knew their own strengths and weakness, build teams of the right teams, discovered the One Thing they could be best at doing together, and they pursued the vision relentlessly. Over time, as conditions changed, as technology advanced, they mastered change by reinventing the business – again finding the One Thing they could be best at doing in the new context. And they thrived.
Every journey ends
Stephen Covey’s The Seven Habits of Highly Effective People (1989) urges readers to “Begin with the end in mind.” Covey asks the reader to visualize their own funeral, which features four speakers representing family, friends, work, and community. He asks the reader to imagine what they want each person to say about them. The point of the exercise is to clearly envision what kind of person you want to have been, and then make choices and take actions that lead you to becoming that kind of person. Beginning with the end in mind means thinking about end results first and keeping those desired results in front of mind during the journey. A few pages later, Covey brings things down to the world of building things. All things, he writes, are created twice. We create first in our minds, and then we take action to create the thing in the physical realm.
Many people don’t like the word “exit” in the designation Certified Exit Planning Advisor (CEPA), even those of us engaged in exit planning. We don’t like it because it connotes an end and reminds us of our mortality. My friends who are serial entrepreneurs know that exiting one business often means setting the stage for starting a new one. Older owners who have had only one business find thinking about Exit Planning especially difficult. However, given the stakes, beginning the dual journeys of personal and business reinvention is an imperative, not an option. First, the owner must envision themselves as a CEO who can step away and trust the management team to keep the business running smoothly and thriving. They must then work to become that CEO and build that management team. Second, the owner must envision life after business ownership and the legacy they want to safeguard in the realms of family, friends, work, and community. Third, the owner must envision the best-in-class company that will sell at a premium, and they have to reinvent the current company so the vision can become reality.
The concepts are simple, but journey is not easy. Nothing worthwhile is ever easy. The results of reinventing your business in an Exit Planning context can be life-changing: the owners beat the odds; they have a plan the next phase of their lives and can achieve fulfillment; they have built and protected their legacy; and they have been ushered into the elite club of former owners who have successfully sold their businesses and reinvented themselves. Ultimately, these former owners will finally have the resources to make a significant social impact by financially supporting the causes that matter most to them.
Go beyond what the world expects!