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How to Position your Business Now So You Can Sell It Later

Passion without purpose is not enough to get your business sold or funded.

Pavlo Phitidis

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Passion is infectious! It makes you believe that you can change the world, and people too. Whilst the former is possible, the latter is unfortunately a fallacy.

The Case of Jack and His Business 

Jack walked into my office, eager to meet for our consultation. He was brimming with energy and excitement. My receptionist offered him a seat and he distractedly flipped through a few magazines trying to speed up the time.

He was escorted into our meeting room and offered tea. He has a coffee instead. A double shot cappuccino. He needs more energy? I ponder.

Immediately he broke into a soliloquy of woe and wonder. Woe at the state of the furniture industry in South Africa; wonder at the fact that he’d found the antidote to the problems in the industry. He had the silver bullet, the final solution if only he could get people to work with him.

Related: 10 Questions to Ask Before Selling Your Business

Jack began with very little behind him his whole life. Everything he has today he had to fight for. He has the gift of the gab, and can sell anything. He entered into the commercial furniture industry 15 years ago and excelled as a salesman.

Six years back he began his own business after falling out with his former boss. Very quickly he established himself in the trade as a dealmaker and broker of furniture, matching customers like restaurateurs, hoteliers and business owners to suppliers. He struck deals with a voracity that was astounding.

Jack told me that he’s succeeded by sticking to certain principles in the manner with which he conducts his business. The customer always, always comes first; don’t leave any money on the table since the selling effort should maximise returns; and innovate continuously.

Applying these principles relentlessly has gotten Jack to where he is today, operating a business with 32 staff on an annual turnover in excess of R36 million. Two months back he employed a new partner with design and décor skills and he had begun selling consulting services in this area. He did this in response to customer demands and it went to the core of his principles.

He needed funding to make two acquisitions. The first was his biggest supplier, a manufacturing business making wooden furniture and the second was a plastic furniture importer who had a number of agencies between Europe and the East. His frustration was that in a recent bid to get a funder on board, the deal collapsed at the 11th hour. It was the fifth time in six months that this had happened.

The Critical Questions To Answer

Forty five minutes had passed and I insisted that Jack let me ask a few questions.

1.  Who is your customer and why do they care about you?

Jack lit up. From restaurants to retailers to any other business that operates out of an office. They cared about Jack because he offered the best customer service, innovated all the time and left nothing on the table. Put differently he was a one stop shop. Customers first, he reminded me.

2. Who operates your business and who grows your business?

He does both he answered. His day begins at 7am and finishes anywhere from 6pm to 9pm. He works every weekend to catch up the admin. He doesn’t mind this as he is passionate about his business and in any event, he is the lead sales person too, requiring him to grow the business whilst operating it.

 3. When last did you take a holiday?

Jack said he didn’t need a holiday as he loved what he did. His work was actually not really work but his hobby.

He added that he didn’t need holidays as even if he takes time off all he thinks about is his business. Finally he said the last holiday he took was a disaster; things went pear-shaped on a customer delivery and it created more stress than the holiday was worth.

Let’s See Your Numbers…

Now the excuses and apologies began to flow. His numbers were in a mess but this is not unusual. Very few entrepreneurs begin a business to do administration and compliance back-office work. As I looked through the numbers, the revenue numbers over the last four years showed impressive growth. The big problem was the thin, very thin, profit numbers. Jack’s business was in trouble.

As I looked at Jack I could see that he was burnt out. Beneath his exuberance and excitement about what he does, how he does it and his enthusiasm about the furniture sector, Jack looked 15 years older than he was.

His excessive energy levels belied an undercurrent of panic which was indicated by an overzealous and insistent notion that everything will come right if he simply gets the funding he is looking for. I disagreed and after making contact with the funders he had spoken to, I realised that the issues in the business were far more fundamental.

No Strategy, No Business 

The single greatest fear of each funder is that Jack has no strategy. His desperation to please every customer he engages with and the variety of customer segments that he markets and sells to create far too much risk in Jack’s business. Without him there, Jack has no business.

The extreme complexity and noise arising from a business that is trying to be all things to all people has resulted in Jack being everything to everyone. This includes his staff. No Jack meant no business.

Jack had not created a business asset that a funder could invest in. Rather, he had created a job for himself and no funder can lend into that. If a funder won’t lend, for the same reasons it’s unlikely that any smart money out there would buy the business either; something Jack had considered before coming to see me.

Today we are at work to redirect and more importantly reprioritise Jack. It has nothing to do with his business and everything to do with his mind-set, focus and priorities.

Passion is the fuel that is absolutely necessary to start, build and grow your business. Without passion for what you do, you will struggle to get beyond the first few months or few years in this long process. Yet, passion is not enough.

Purpose is equally, if not more important. If your purpose is not single mindedly to build an asset of value, you will land up as one of the 94% of business owners who never sell their businesses. They cannot sell their businesses because nobody wants to buy an entrepreneur.

An asset of value promises three broad possibilities:

  • Your business is positioned in a niche defined by a customer experience
  • Your business is run by a system of delivery and not you
  • Your business has the ability to diversify its cash flow risk across a number of customer segments that are very closely aligned
  • You can take holidays and your business still runs successfully
  • Your business is… simple.

Whatever your reasons for starting your own business, be it necessity or opportunity, ensuring that your purpose is to build an asset of value is critical to your success as an entrepreneur.

Building our businesses driven by passion alone does not ensure this. For this reason, passion is important but not enough. Don’t realise this too late.

Related: Good Strategy Beats Bad Growth — Every Time

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

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Compete to Win

How Netflix Is Now Disrupting The Film Industry By Embracing Short-Term Chaos

One wrong move and Netflix could have been nothing more than a footnote in the history of entertainment. But by staying ahead of the curve and embracing disruption, the company is threatening some very entrenched competitors.

GG van Rooyen

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Attendees of the annual Cannes Film Festival are typically not afraid to be vocal in their dislike of a new film — booing and hissing are both surprisingly common — but the recent film Okja possibly set some sort of record. The crowd was booing and jeering before the film had even properly begun. In fact, all it took was the name of the studio behind the film: Netflix.

Why the animosity? Netflix is disrupting the film industry, and the traditionalists aren’t happy. After debuting at Cannes, Okja wasn’t released in cinemas. No, instead it was released right to Netflix, free to stream as long as you have an account.

Of course, few would have guessed a few years ago that Netflix would ever get into the business of making its own television shows and movies. According to industry lore, entrepreneur Reed Hastings launched Netflix because he was annoyed with the exorbitant late fees of video/DVD store Blockbuster.

Instead of having to return a movie once you’ve watched it, he conceived of a business that would ship DVDs right to your door through the mail.

Related: Meet The 40 Richest Self-Made Entrepreneurs On Earth

It was a clever idea, but not one that seemed terribly disruptive. The whole process could be a bit of a hassle, and it required you to schedule your entertainment well ahead of time. Blockbuster even had a chance to buy Netflix, but decided that it wasn’t worth it.

The rise of streaming

Even as Netflix was hitting its stride in the early-2000s, the tide was already turning. It was becoming increasingly clear that the Internet was going to be an incredibly disruptive force, but many companies failed to notice. Or, if they did notice, they failed to take adequate action.

By 2007, the potential of streaming TV shows, films, music and books online was clear, but the DVD business was still doing well. However, Netflix decided to prepare for the future (and disrupt its own operations) by launching a streaming service. It did this by going to the traditional movie studios and television networks, and asking to licence their old content.

In the view of these studios and networks, old pieces of entertainment had run their course, so they were pleased with the new revenue stream.

This brings us back to Okja. Netflix has been creating its own content for the last few years because it realised that studios and networks would eventually catch on. At some point, they would understand that they were giving Netflix the ammunition needed to disrupt the industry. Why have Netflix stream your content if you could create your own streaming service?

“The goal is to become HBO faster than HBO can become us,” Hastings said of one of the most popular American cable channels back in 2013.

In a mere 20 years, Netflix has gone from a low-tech operation that sends DVDs through the mail to one that not only streams content online, but is also producing its own content — content from some of the most respected actors, producers and directors in the world. All of this is costing Netflix hundreds of millions of dollars, and it remains to be seen if this strategy will ultimately pay off, but betting against Netflix is risky.

Related: How To Make Money Investing, According To Ashton Kutcher

Netflix has shown itself to be uniquely capable in drastically shifting its business model. Here is how Hastings explains it: “Short-term optimisation about being efficient is the death of long-term success and innovation. Building Netflix, we created a company that tolerated some short-term chaos, and we manage right at the edge of chaos. The value of that is keeping and stimulating the amazing thinkers, so when the market shifts, like DVD to streaming, or licence to original content, we have in Netflix all kinds of original thinkers, and that is the long-term optimisation that all of us in organisations want.”

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SME Leaders: How You Can Manage Growth

Fresh growth is all around us this Spring – find out how you can powerfully manage growth as you provide leadership to your SME.

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In the transition from start-up to scale-up, a critical factor for a growing business is the quality and strength of its leadership team.

Learning to trust and empower staff is a crucial step for SME leaders who wants to grow their business upwards.

As a business grows, one of the biggest challenges for the business founder and leader is the hand-over of an idea from the founder to the people who work there, The brand moves from being one person’s idea to being the professional focus of a whole group of people.

Without effective leadership, small businesses will be held back, more than three-quarters of SMEs provide no leadership development for their staff. What does this mean for you?

Related: We Went up Against A Highly Regulated, Entrenched Industry. Here Are 4 Tips For Getting Your Foot In The Door

If you lead your business with vision and clarity, you set yourself apart from your competition. Here’s how.

Lead the pack

A growing business creates more work than a leader can handle alone.

As the team grows, founders often react by micromanaging the details of their business. In trying to take on everyone else’s job, the founder often leaves the most critical position vacant: strategist and vision-setting.

Learn to trust and empower others in the organisation and you will find you have room to innovate, which is critical for business growth.

Related: What I Learned About Dating That Will Transform Any Business

Steady the ship

An effective leader will also engage others in the business to embrace and adapt to change as growth continues.

  1. Vision: First, plot the course for where the business should go in the short term, and the long term.
  2. Change: Understand what needs to be put in place to grow the business. You might need to source better business operating systems to streamline this growth, or change a few internal business processes, or rethink how you calculate your hourly rates.
  3. People: Growth equals change, and change equals pain, so if you want growth, budget for pain. Understand that you will need to guide and coach the staff into changing their mindset and adapting to these growth changes.

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We Went up Against A Highly Regulated, Entrenched Industry. Here Are 4 Tips For Getting Your Foot In The Door

Focus on creating value, not disruption.

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Multibillion-dollar legacy industries don’t make it easy for entrepreneurs to step in and create value. There are huge barriers to entry – licensing, pricing, regulations, and cultural/brand significance – that come with being around for a century or more.

However, those barriers shouldn’t stop you from innovating.

Take the utility sector for example, which is perhaps most frightening of all: A trillion-dollar taxpayer subsidized network of poles and wires set up through franchised municipal monopolies. Otherwise known as, our power and energy industry. It’s a mouthful of protection, and as a result, utilities make for a great investment (just ask Warren Buffet), since the likelihood of disruption is tough to even think about. To most reasonable entrepreneurs, the regulated utility sector, similar to the financial and healthcare industries, is tantamount to a “NO TRESPASSING” sign.

But, that is exactly what makes the effort so worthwhile. If you can successfully work with or alongside a monolith industry and produce value, instead of being focused on “disruption,” you’ll be able to achieve massive results.

When we first started trying to provide consumers cleaner and better energy options, getting to market proved difficult as we were trying to break into a utility-customer relationship (paying a power bill) that hasn’t really changed for the last half-century. But, with a clear mission in mind and the understanding that we would have to work in unison with utility providers, we were able to start making our mark.

Related: How to Create a Winning Mindset, to Crush the Competition

Here are a few tips for getting your foot in the door:

1Create value, not disruption

There are some industries where the Silicon Valley catchphrase “disruption” falls flat. Some industries just aren’t meant to be disrupted in the way that people in the tech community are used to. Nearly our entire economy depends on the power grid and we couldn’t come in and totally upheave that. When you’re going after a big industry, you first need to provide value to the customer or the provider. 

Show instead of tell that you have a strong customer base and that people need what you’re offering. And build relationships – working together with the big players in the space will get you much faster and better results for your company and your customers.

2Focus on the customer experience

When you’re a startup, you already have the advantage of being years ahead in your digital experience compared to traditional companies in your space. Own that and hone in on it to make it the best customer experience possible. We looked across sectors to bring modern design, UX and data elements to the home energy experience.

Traditional companies aren’t necessarily thinking that way, and you’ll win people over by offering self-service customer tools, easy payment options and notifications they actually understand. Good communication with your customers goes a long way.

3Start small, build toward the vision

A lot of start-ups begin with very lofty goals – disrupting whole industries and changing the entire way a process is done. We certainly had a broad vision to be the trusted home energy advisor for everything from solar to batteries. But, you’ll never be able to achieve anything if you try to tackle everything all at once in a highly regulated and old-fashioned industry. Instead, to get started, focus on one thing.

For us, it was offering clean energy via renewable energy certificates (REC). By starting small, you’ll be able to learn about and understand the space you’re going into, and will be able to see if there’s a market for what you’re offering. As you learn, you can slowly expand step by step and tackle more complex products in the industry.

Related: Why Flame-Grilled Chicken Franchise Galito’s Opened Up Shop Right Next To The Competition

4Use best practices from other innovative industries.

No industry has a monopoly on good ideas, and the boom in direct-to-consumer brands across apparel, food, finance and healthcare provides a great roadmap for how to build a modern customer experience. Look to other industries that have been there and done it. For example, Mint.com has created an innovation through the consumer interface – in their case to manage finances – while leaving the existing banking and credit card infrastructure in place.

While the thought of breaking into an established industry is definitely intimidating, in today’s entrepreneurial environment it is definitely possible and innovation is desperately needed. Success depends on the ability to shed your typical idea of disruption, and stay patient and persistent.

This article was originally posted here on Entrepreneur.com.

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