Connect with us

Strategy

Business Growth Blast Off

How to build the right people systems to accelerate growth.

Pavlo Phitidis

Published

on

Building-a-High-Value-Business_Strategy_Business-Leadership

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.

Business savvy

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?

[box style=”grey map rounded shadow”]

Don’t Be Surprised When Your Employees Don’t Follow You. Read This

[/box]

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.

[box style=”grey map rounded shadow”]

If You Want Your Business to Be Exceptional, Follow These 3 Rules

[/box]

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.

Pavlo Phitidis is the CEO of Aurik Business Incubator, an organisation that works with entrepreneurs to build their businesses into valuable assets. Pavlo is a regular commentator on entrepreneurship on 702 Talk Radio and 567 Cape Talk Radio. He can be contacted at www.aurik.co.za

Strategy

You Are Your Own Client

Before you can build a start-up that takes over your industry, you need to treat yourself as your own best client.

Allon Raiz

Published

on

client-service

In business, when you have a client, the relationship is formalised into a structured one where there are defined expectations and regular meetings. For example, if you are a consultancy and have a one-year contract to deliver services to a client, the relationship will be formalised, structured and possibly include monthly status meetings. Some may be report-back meetings while others may be briefing meetings.

Your client will receive a monthly invoice and there may be quarterly reviews of the work you have done. Your general mindset is one of service to the client because they are important and worthy of the effort. Crudely speaking, most service-provider arrangements work in a similar way because the structured model works.

In contrast, as entrepreneurs, our relationship with our own business is often far more chaotic or ‘organic’ than formal. My contention is that it is also much less effective. When I work with SMEs, one of the first things I do is encourage the entrepreneur to treat his or her own business as a client by formalising meetings, ensuring that there is a feedback loop and having a service-provider mindset. By making these philosophical and structural changes, you will create a far more efficient and well-run business.

There are four aspects to any business which, in my view, should be formalised.

1. Partners

It still astounds me how informal the meetings are between partners in SMEs, especially when they operate from the same office. There are no set times, no agendas and no outputs required. The fact that you might sit in the same office or chat regularly is the problem because it’s interpreted as proper communication while it’s actually a very undisciplined and unstructured process. Casual chats do not ensure that all the requisite items or issues are being properly discussed and dealt with.

Related: How Investors Choose Who To Invest In

2. Staff

The often-given excuse for not holding weekly, biweekly or monthly meetings with team members at the same date and time is that the business is fluid and the entrepreneur needs to be responsive to their clients’ urgent needs whenever these might occur. And so non-rhythmic meetings are occasionally inserted into the gaps in between the chaos.

The discipline that I try to imbed in the SMEs I work with is to hold rhythmic meetings at a certain time and day every week, month or quarter. Should there be a need to cancel this meeting for whatever reason, it should be rescheduled. The simple discipline of rescheduling and not cancelling allows for a compromise between the practical reality of an entrepreneur’s life and the discipline required to build a sustainable business.

3. Agendas

Agendas are often seen by entrepreneurs as an icon of the structure of the corporate world. They smack of rigidity, stuffiness and boredom so they are often discarded and replaced with warm and fuzzy chats. In reality, in order for it to be an effective use of time, every meeting requires a structure, outline or agenda.

This can be a comprehensive agenda similar to that used by corporates or as simple as each person in the meeting talking about their three top-of-mind issues. What is important is that there is structure and outputs, otherwise the meeting’s output is merely that it’s nice to know. The output from a meeting with a formalised agenda is that it’s nice to do.

Related: Why Reading Is The Most Important Tool In Your Arsenal

4. Product review

When last did you, as an entrepreneur, formally ask yourself if your products are still relevant and effective in the market? One of the greatest oversights made by SMEs is not regularly reviewing the appropriateness of their existing products or services. In a high-growth, chaotic environment that is attuned to constantly producing new products, existing products soon become the ugly stepchild, only getting attention when the client cancels the contract because your competitor has a faster, shinier and cheaper iteration of your product. An incredibly important discipline in any business is the regular and formalised review of products and services.

We resist structure as entrepreneurs and the price of that resistance is ineffective and inefficient businesses. By simply treating ourselves as we would our clients, we are able to imbed a level of structure to our businesses that will create a far more effective and enduring business.

Continue Reading

Strategy

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.

Kyle Torrington

Published

on

shareholders

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.

Related: 7 Factors To Determine Who Are Your Employees (And Who Aren’t)

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.

Related: Reality Check: You Probably Don’t Own That Work You Outsourced

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.

Continue Reading

Strategy

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.

Henry Sebata

Published

on

team-management

The staff that work for you determine:

  1. How happy your customers are with your business
  2. The quality of the things that you sell
  3. The costs that you incur to sell your products and services
  4. 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).

Related: Why Innovative Employee Benefits Are Your Competitive Advantage

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?

Everyone wants:

  1. Job security – knowing that you will still have a job next year – and that you will get paid on time.
  2. 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!
  3. 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.
  4. 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.

Read next: Understanding Your Responsibility As An Employer

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending