94,6% of businesses started do not get sold! Our purpose as entrepreneurs should be to build our business into an asset of value, which is a business that one day could be successfully sold and fetch a premium price. It’s also a business that can successfully raise growth funding.
We should be building assets of value because our businesses are our pensions and there is nothing elegant about retiring into poverty after ten, 15, or 20 years of building an unsaleable business.
Brian is one of the most charming and affable people I have met. When he walked into my office five years ago I warmed to him within minutes. He had a firm handshake and his wide smile clearly said, “I’m so pleased to meet you and thank you for your time.” This was his way with everyone he met. We sat at the table and he began speaking.
His contagious enthusiasm about his business, his excitement about the trends that were reforming the telecommunications sector in which he traded and the open ended possibilities that this change brought into his businesses got me equally excited. His insights were delivered with a wit and intelligence and I could see that Brian took his business very seriously, but not himself. This was part of his charm and I listened intently since I knew that this would also be his shadow.
He had worked in one of the big cellular networks for a number of years before he began his business. He left a nine year corporate career to start his business and four years down the line saw his business fast approaching annual revenues of R23 million.
The idea for his business emerged from his time in the cellular networks where he had been employed in business-to-business data sales. His job was that of pre-technical sales. He met clients, interpreted their data needs and translated them back into products that his company offered.
This placed Brian at the coal-face of a dynamic market where client needs either lagged or raced ahead of what the network provider could offer. The industry was undergoing stupendous growth.
Where great ideas fail
Brian was sales. Everything about him spoke it and resulted in it. I could sense his frustration and more specifically, his exhaustion. He had taken no more than 17 days of leave in the last four years, including public holidays. This was simply unsustainable.
At the same time he had spent in excess of R300 000 in search and placement fees with three of South Africa’s best known sales-specialist recruitment agencies. They had actively head-hunted some of the best sales professionals in the sector.
All had resigned within three to six months of starting at Brian’s company and were working elsewhere.
Five sales professionals in four years and none were on the ground. I looked at their CVs. They were pros. Each one had performed in their previous employ and three made big sacrifices to leave good jobs and join Brian. So why did they leave him?
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Don’t Be Surprised When Your Employees Don’t Follow You. Read This
The business systems diagnostic
As impressive as Brian’s revenues and forecasts were, the valuation I did on his business horrified him. His business model was super smart. It offered a volume based, variable pricing model for clients, cold water for new competitors and an inbuilt innovation cycle that would never allow his techies to rest; a key feature of a tech company needing excellent technical skills to innovate the market.
On top of this all, once integrated into his clients’ systems, automated billing administration worked smoothly, the reporting built trust and deepened his credibility with his clients. His self-provisioning set-up allowed clients to customise many elements of their service from Brian making switching costs very high.
With all this and racing revenues, his business spluttered a valuation between R2,8 million to R3,2 million. Brian was dismayed.
Many aspects contribute to a business valuation. A dominant feature in Brian’s and any other business is the people system. Brian’s had none. The evidence was palpable.
The source of the valuation pain came from the discount rate, one of the three elements that make up a valuation calculation. His forecasts were fantastic, the business scaled and the investment needed to sustain a robust aggregation platform was accounted for. Cash flows into the future were contracted and the envy of many entrepreneurs. We ran the business systems diagnostic.
The results came onto my desk whilst I was on the phone with one of the sales professionals who had worked for Brian. His marketing systems were okay, operations rocked, money management was tight. But his sales systems were barely existent and his people systems were all over the place.
I spoke with the other sales professionals and they echoed the same story. Brian was a fantastic guy, driven, passionate, can-do. It was very exciting to work with him at first. But then you could do nothing right.He interfered in the sales processes and got angry when certain things were not done his way. The problem was, none of them knew what his way was. If they did, they would have done it.
The high discount rate was there to counter the single biggest risk in the business, Brian himself. His shadow loomed larger than ever. Brian was the business.
Without him, there were no more sales and there were no more relationships. His single biggest strength turned into the business’s single biggest weakness. I valued the business as a buyer would and no Brian equalled no sustainable business.
We had to fix this and fast. Brian needed to raise growth funding for his Africa strategy and, in typical style, had already secured the contracts into Tanzania and Kenya.
Building business systems
Brian’s problem is not unusual. When we grow we need help and we offer jobs. We look for help so that we can focus on the many other things that a growing business demands. The successful candidate comes into the business and we start to realise that this person can’t do what we thought they could do. Do we continue to invest in them and hope that it comes right or do we move them out and start again?
The investment of our time as business owners in sourcing, selecting and then engaging new staff is enormous. The risks that we open up in our business every time we do this are enormous. The hope we place on this person within our emotional framework is enormous. And then to top it all, we pay them before we pay ourselves.
The answer lies in not offering a job to perform a business function such as sales or marketing or buying. Rather, we should be offering jobs to run business systems that we have built.
Good systems include six elements: The activities and actions that need to be taken to make something happen, organised into a sequence to deliver a measurable result within a period of time. This is then specified in a job description and supported with training materials on the activities with a carrot and stick written in a contract of employment.
These are systems we build as business owners. We test them, refine them and, only then do we employ people to run them. This way, we increase our chance of getting the right person to do the ‘job’. We can measure their performance fast, reward them effectively to keep them, remove them efficiently if they can’t get it right.
In this way we get back the precious commodity of time. Time to focus on growing our businesses to the next level since if we don’t, no one else will.
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If You Want Your Business to Be Exceptional, Follow These 3 Rules
A growing business
Within six months, Brian had a sales system in place employing three sales people. The systems achieved the sales and the people ran the systems. We had in effect systematised Brian. We redid the valuation that year. A different number emerged. Brian was no longer the business and he beamed with pride at its R8,9 million valuation.
What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?
Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.
While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.
Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.
What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.
The illusion of holding more than 50% of the shareholding in a company
- Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
- Examples of decisions that require a special resolution include:
- Amending a company’s Memorandum of Incorporation
- Approving the issuing of shares or granting of other similar rights
- Authorising the basis for determining directors’ salaries
- Disposing of company assets
- Mergers and acquisitions.
So, what does this mean for you and your company?
- If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
- Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
- If you intend to merge with another company, you will not be able to pursue this without a special resolution.
- If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.
Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.
There’s More To Team Management Than Leadership
When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.
The staff that work for you determine:
- How happy your customers are with your business
- The quality of the things that you sell
- The costs that you incur to sell your products and services
- Your risks – the things that can go wrong and how much it costs you
All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?
At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:
- Giving too much or
- Getting too little
- Then this is unfair, and they won’t work well (poor productivity – how much they produce).
The manager needs to:
- Know what people are thinking about what they are giving and getting and
- Manage the giving or getting side
- So that people become more productive
In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.
How do you increase happiness without money?
- Job security – knowing that you will still have a job next year – and that you will get paid on time.
- Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
- To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
- To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!
Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.
Jeff Bezos Reveals 3 Strategies for Amazon’s Success
One of the richest men in the world shared his leadership tips for running a company.
“It remains Day 1.” That’s how Jeff Bezos, founder and CEO of Amazon, signed off in his 2018 letter to shareholders. He’s been propagating the “day 1” mantra for decades, and it’s meant as a reminder that Amazon should never stop acting like a start-up – even though the company now boasts more than 560,000 employees and more than 100 million members of Amazon Prime, the company’s paid service for free shipping on select items.
Here are some of the most useful nuggets of wisdom Bezos shared in his letter and during a recent onstage interview:
1. Standards are contagious
Bezos says he believes high standards are teachable rather than intrinsic. “Bring a new person onto a high standards team, and they’ll quickly adapt,” he writes. “The opposite is also true.”
If a company or team operates with low standards, a new employee will often – perhaps even unwittingly – adjust their work ethic accordingly.
He also says that high standards in one area don’t automatically translate to high standards in another – it’s important for people to discover their “blind spots.”
Try making a list of your duties, then ask trusted colleagues to tell you which responsibilities are your greatest strengths. If certain things from the list don’t come up during the conversation, it might be useful to think about how you can up your personal standards in those areas.
2. Set clear, realistic expectations
If you’re looking to raise your standards in a particular area, the first course of action is to outline what quality looks like in that area. The second is to set realistic expectations for yourself – or for your team – regarding how much work it will take to achieve that level of quality.
Exhibit A: You won’t find a single PowerPoint presentation at an Amazon company meeting. Instead, teams write six-page narrative memos to prepare everyone else for the meeting.
Bezos says the quality of the memos vary greatly because writers don’t always recognise the scope of the work required to reach high standards.
“They mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more!” Bezos writes.
3. Stay involved with the people you’re serving
Whether you’re selling a product or service, it’s a good idea to make sure you never lose touch when it comes to the people you’re serving – no matter how high up the ladder you climb.
Bezos says he still reads emails from his public inbox (email@example.com) as a way to keep his finger on the pulse of what’s happening with Amazon customers.
He says he believes focusing on what customers are saying is much more important for success than focusing on what competitors are doing, and he often compares customer feedback to company data to see where they misalign.
“When the anecdotes and the data disagree,” Bezos said at a recent leadership forum at the George W. Bush Presidential Center, “the anecdotes are usually right.”
This article was originally posted here on Entrepreneur.com.
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