In 2007, at the tender age of 25, I made the leap from a background in strategy consulting, corporate management, and SME management, to starting a business. Driven by a passion to solve the unemployment crisis in South Africa, I launched Edge Growth to help entrepreneurs grow their businesses fast.
In 2008, we built our corporate advisory business, to help large South African corporations grow their suppliers. In 2009, I handed that over to start building our second business unit, an SME investment business. We raised capital from a bank and started a fund to provide risk capital to high-growth businesses.
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Trying to grow through the financial crisis
The timing was awful, coinciding with the global financial crisis and recession of 2008 to 2010. All banks were under immense pressure and that pressure translated directly into highly stressed executives placing immense pressure on us.
At one point, we were given an ultimatum to achieve totally unrealistic targets or we’d be fired (resulting in our business being shut down). The pressure was unbelievable. I felt like I was gripped in a bear hug, inside a pressure cooker, at the bottom of the ocean. I was sleeping two to three hours a night and was chronically hyper-anxious.
Could you be the problem in your business?
Increasingly, I realised my team hated working with me. The pressure was breaking down trust and we were constantly in conflict. Team performance took a dive, and good people left. Slowly I had to confront the reality that it was me. It was my fault. I was the problem. It’s not easy realising the biggest problem in your own business is you.
The level of leadership required under the circumstances had outgrown me. I had become the main constraint to our business.
Nearly a decade later, with a few honorary degrees from the school of business building (plus a litany of battle scars) under my belt, it’s become obvious to me that the experience was inevitable. Building a business is tough, full stop. But I was also building a fund for the first time and building a business for the first time. I was an executive with zero support structures (unlike in corporate settings) for the first time. I was figuring things out along the way and frankly, at the age of 30, I had a lot to figure out.
You need more skills to experience prolonged growth
The problem is that 18-hour work days don’t give you much room or time to think about yourself, your business or where you need to improve and develop. Growing rapidly under those circumstances, it was inevitable that I’d discover the ceiling of my business management ability was too low. I’ve since learnt that this is true of almost all entrepreneurs scaling a business fast, for the first time.
Over the years, I’ve seen the same pattern playing out in most of the fast growing businesses we invest in or advise: The business outgrows the leadership and the CEO or top two to three people become the biggest constraint in the business.
It was through my own painful experience — and that of other CEOs I walked the road with — that I learnt the painful lesson, what got you here, won’t get you there.
Keep upskilling yourself to continue your business’ growth
The skills and disciplines that made you successful up until now and created your current opportunities, are insufficient to make you successful in those opportunities. As a business grows, the skills required to run that business change, and get increasingly difficult to build.
Most entrepreneurs don’t have the skills to run a larger, more complex organisation beyond a 20 to 50-person headcount. These businesses take a lot of time and effort to build, and the owners are so trapped in the hyper-pressure vortex of day-to-day business that they do nothing about gearing up their own management capabilities to match the needs of a scaled business.
Soon enough, the business ‘gets stuck’ in No Man’s Land, constantly repeating a chaotic fight for survival, because its complexity is just too much for the level of managerial competence.
Seeing this pattern play out painfully in business after business has convinced me that the single biggest constraint to economic growth and job creation in South Africa is this issue: CEOs in fast growing businesses becoming outgrown by their successful businesses.
I’m so passionate about this issue I’ve launched a new business to solve this problem. It’s called The 10X Entrepreneur. Our mission is to help founders 10X themselves and their teams, so that they can 10X their businesses.
4 Key tips to scaling a company
If you’re scaling a company for the first time, here are my key tips:
- Study business scaling. Jim Collins and Jack Welch books are great. An MBA is useful, but they are woefully inadequate for the job of scaling a business from the ground up. Know the specific journey of scaling a business: The crises, transitions, and what it means for your job as a leader.
- Focus on your skills. Implement an accelerated personal growth system to build your Scale-Up CEO skills – See Are You (Realistically) Ready To Scale Your Business
- (Carefully) add competent executives to your senior team. Building critical mass of executive management competence radically accelerates your own growth as a competent entrepreneurial executive. Make sure they are the rare breed that thrive at building from the ground up, not just running organisations that are already built with procedures in place.
- Make the building of great management systems a primary priority. Learn by doing. But get the help of consultants. Learn from gurus in a quasi-one-on-one coaching relationship and attend business bootcamps.
What’s Your Number? How To Unpack Company Valuations
Business is booming. Investors want in. But how do you put a price on the value of the company you have built with your own hands?
Company valuations is such a hazy part of the scale-up journey of a private company. Putting a price tag on a business is both art and science. At the end of the day, the number that makes the headlines (if ever disclosed) will be where willing buyer and willing seller meet.
But how do you , as business owner, go about setting your asking price? Before approaching investors, it’s a good exercise to determine your own valuation range for the business. Choosing the right valuation method is the first big question. The answer has many parts to it, but the most important driver is the stage of the business.
Let’s look at some of the most commonly accepted valuation methods in our market:
Applicable stage: Established, profitable companies
Listed companies, institutional players and private equity investors normally invest in a company for its cash flow profit that can contribute to their portfolio income. More often than not, companies will be valued based on their current earnings (bottom line profit after tax).
This method can only be used for companies that consistently make a profit. A multiplier will be chosen based on the company’s perceived risk. Younger, more risky businesses will likely have lower multipliers (as low as 3 and 4) and high growth, well established, lower risk companies will get higher multipliers (8-15).
Sometimes small adjustments are made to current year earnings (like non-standard, non-repeating income statement items) after which the valuation is set at Earnings times multiplier equals company valuation.
Discounted Cash Flow (DCF)
Applicable stage: Post-revenue start-ups, growth companies and established businesses
The most commonly used method in practice, the DCF method argues that a company’s value is determined by the future cash flows that it will yield to investors.
The starting point is creating a five to ten year cash flow forecast for the business. This is no small feat. In order to create a full financial model – income statement, balance sheet and cash flow statement – for the next decade requires a lot of work, both from a strategic and technical perspective.
Investors love this model because if forces the owners to put a clear strategy and expansion plan for their business into numbers. It will include dozens if not hundreds of assumptions – all of which can be scrutinised for reasonability. The result of financial model will be five to ten years’ worth of projected cash flows. These amounts are then discounted to present value at a discount rate that reflects the company’s risk and expected cost of capital.
The sum of the discounted future cash flows plus a terminal value (that represents the value after the five or ten year period of the model) then represents the valuation of the company after some final small adjustments for things like existing debt in the business.
A revenue multiple valuation approach is focused on the market for similar businesses and is underpinned by your company’s current turnover. It seeks out the sales price of other similar companies in the country or worldwide, adjusted for size, stage and market differences.
A company that sold for R100 million at a turnover of R50 million would have a two times revenue multiple (valuation/revenue). If the average revenue multiple for similar companies is in a certain range, this multiple is then slightly adjusted and applied to your business.
If the average sale in your industry has been two times revenue but you are growing much faster than the average with a better competitive advantage, you can argue that two and a half times revenue is a more applicable number for your business. Revenue multiples are often used as a reasonability check in the market for the current asking price.
Most established companies are valued using one or a combination of more than one of the above three methods. At start-up stage, there are a number of other methods like Cost to Replicate or the Scorecard Method that early stage investors look to. When a company is simply in too early stage to practically value it, seed stage investors would also consider SAFE Agreements (Simple Agreement for Future Equity) – an instrument that determines that the percentage of the company the investors are buying with their investment. This is only determined when the Series A round is raised at a future date and under certain conditions, generally at a discount to the price the series A investors are paying.
Company valuations are complex. Many of the above technical factors play a role. A lot of it also comes down to the salesmanship of the owners and the negotiating capabilities of the parties. In ‘How Yoco Successfully Secured Capital And The Importance Of A Pitch’, the Yoco team speak about the importance of the right approach in their recent R248 million fundraising
Don’t go into this process without seeking some kind of expert advice. The price of the wrong valuation is simply too high. Make your numbers and your arguments bulletproof and you will be on your way to defending a strong and exciting valuation for your next raise!
3 Keys To A Vision Others Can Own
Trying to get others to buy into a vision that is all about you getting more money is not going to excite people.
I get really excited about my dreams. Over the years, as I have led my team, I have realised that they aren’t as excited about my dreams as I am. I own two restaurants and employ minimum wage employees. In the early years of owning my restaurants, turnover killed me. I used to fight for them to have the same passion for my goals and dreams as I had and as a result I had extremely high turnover. Confused and frustrated, I knew I needed to change the way I was leading a team.
A few little changes have created a committed team and extremely low turnover. If you don’t have a passionate, committed long-term team, check these simple vision casting strategies.
Often our vision that we cast is shallow and self-serving. A vision that is all about you getting more money is not going to excite people. Take some time to uncover what you are trying to accomplish. When you can cast a vision beyond your selfish desires, others can sink their teeth into the vision. For my company, I wanted to raise up leaders to change the community.
My focus changed to my crew and they could feel the shift in perspective, which also helped me to earn a bi-product of more money, my original desire.
Our deeper vision helps us keep and build a team, but it’s still our vision. We need to really understand the goals and dreams of our team to find untapped potential and loyalty. No one will ever care as much about our vision as us because it’s ours. The more focused you get about helping your team and their wants and desires, the more they will care about yours. In my restaurant I had a young lady who wanted to be a teacher. I thought about what it takes to be a great teacher and how I could help her toward that. Find out what they care about and dig deeper to see what is behind that desire.
Marry the Two
If you have a team running around caring only about their vision they may be loyal and passionate, however, they will not be united in one direction. Magic happens when we combine our vision and their vision. At the points of intersection, our interests and theirs are united to accomplish more. I want to encourage leaders who can change the community.
As for the employee I mentioned above who desired to be a teacher, I trained her toward being a better teacher so that she could raise up young leaders to change the community. Now she is one of my top supervisors and teaches many other crew members. She will be an awesome teacher someday, but in the meantime, she is a valuable team member.
Caring for a team and helping them see how your vision and their vision can help each other will change everything. Growing people is the business no matter what business we are in. Care for others and they will care for you. Care only for your own wants and you will never get the most out of your team. Find a deeper vision, figure out your teams’ vision, and combine the two and your business will transform.
This article was originally posted here on Entrepreneur.com.
3 Signs You Are Your Own Worst Business Enemy
It’s hard to be objective about ourselves but if we really pay attention our colleagues will reflect how we are perceived and what it means for the business.
Sometimes, it’s hard to get out of your own way.
Entrepreneurs and business owners have to keep all the trains running on time, as well as figure out the next place they’d like those trains to go, metaphorically speaking. It’s a huge, complex job. So it shouldn’t be a surprise to realise that in many cases, the problem behind an underperforming company is the boss.
How do you know when it really is “just you,” though? We human beings have a notoriously difficult time being objective about our own behaviour and choices.
So, try looking for the following signs in the people and circumstances around you.
1. Your employees seem unusually tense or flat lately
Has the camaraderie vanished? Is the workplace one big collection of really bad moods, most of the time?
Of course, the boss’s mood can infect the entire office. As the leader of your team, you set the example and the atmosphere, and your employees follow your lead.
Getting along with others, both inside and outside your company, is imperative for success. If your employees and customers sense a negative change, then it’s worth examining your behaviour. These signs could be symptoms that you’re becoming a toxic boss.
To address this, first make sure you’re acting with integrity and in accordance with your personal values. Next, make an effort to demonstrate empathy with your employees. You don’t have to agree with every single point they make to do this. Respect their boundaries and try to see the issue from their perspective.
Finally, make sure you listen deeply. Employers who simply command and demand compliance find themselves stuck with the “toxic” label all too quickly. Instead, be curious about your employees’ perspectives and problems. Ask open-ended questions to get them to tell you more, and listen to what they say.
2. You feel deeply frustrated with your employees
Are you feeling unusually impatient around new workers? Do you find yourself snapping at experienced workers over small annoyances or accidents?
If so, there could be some deeper issues at play.
Insisting on perfection, or even just on competence in an unreasonable amount of time can eventually sour your entire workforce and drive away valuable employees. You’ll have a hard time attracting and retaining talent if you create an awkward, uncomfortable or outright hostile environment.
Instead, try practicing a “talk-down” method on yourself. When you feel your impatience or annoyance growing, mentally talk yourself down from these emotions to a state of greater calm. Here are some questions to ask yourself:
- On a scale of one to 100, how bad is this, really?
- What’s the worst that can happen here, realistically speaking?
- If that happened, how would we respond?
- Is this more important than my relationship with my employees? Or my reputation?
In most cases, reflecting on these questions helps you keep small issues in check. You’ll also want to give some thought, however, to whether there’s a bigger issue just beneath the surface. Using smaller problems as a diversion from the bigger ones provides an effective distraction from tackling life’s larger challenges, but doesn’t do much to help us solve underlying issues.
3. Minor projects are infinitely refined and “perfected” but your company hasn’t come up with a strong new idea in ages
One of the most common ways entrepreneurs become their own worst enemies is by focusing too heavily on things that don’t deserve so much attention. For whatever reason – be it fear of failure, fear of success, or something else altogether – people fall into the habit of spending too much time perfecting existing projects when they should be thinking about what’s next.
Not giving yourself enough time to create and innovate is one of the biggest ways to become your own worst business enemy. Your primary job as the business owner is to create that overarching vision for your company, and then work with your team to figure out how to achieve that vision. If you’re not even allowing yourself the time to do so, you’re fighting an uphill battle without reinforcements. After all, no one else can really do this kind of work for you.
To combat this tendency, try keeping a log of your time for two weeks. Track your time in fifteen minute increments to help figure out where you’re spending the majority of your attention and energy. Then carve out uninterrupted “CEO time,” and schedule it as if it’s a firm appointment you cannot reschedule or miss. Give yourself at least three hours a week to work on new ideas for your company.
It’s hard to be objective about our own behaviour and surroundings. Instead, use your colleagues, employees, and environment as a mirror to reflect back to you the reality of how you are perceived and the ways that perception is impacting your business. Then take the appropriate action to mitigate those challenges.
This article was originally posted here on Entrepreneur.com.
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