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How To Maximise Real Returns For Your Shareholders

When you are both a shareholder and a manager of a company, it is all too easy to forget that, as a director, you have a responsibility to deliver returns and create value for your shareholders.

Carl Bates

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When you sit as a director on the board, you have to apply your mind to how the board and the wider team will deliver on the expectations that shareholders have or should have of the business.

There are many ways that directors can create tangible and meaningful value for shareholders and other stakeholders. Just having an effective governance process creates shareholder value. However, as a director here are some specific ways you can drive shareholder value creation.

Related: Give And Receive: The ROI On Incentives

Watch out for the illusion of success

When you are involved in day-to-day operations, it is so easy to fall into the trap of seeing all the good work that your team is doing as the reason to justify why shareholders are not getting the returns they should. In one of our companies, a shareholder once commented that ‘nothing seemed to be going on’.

I was initially taken aback and, as the excuse was about to pop out my mouth, I realised that he was right. If a shareholder does not get their return or some form of increase in value, then there is ‘nothing going on’ for them. When you wear your director hat in a boardroom, then understanding, agreeing and meeting shareholder expectations is a key area of focus.

Wear the ‘three hats’ well

As a shareholder-manager who also serves as a director on the board, you have to learn how to put aside your shareholder and manager hats and instead wear only your director hat. We have observed that the ability to wear the right ‘hat’ at the right time creates massive value for the board and the company as a whole.

Shareholder issues simply do not belong in the boardroom. They cloud effective decision-making and can, ultimately and ironically, destroy shareholder value even if the majority of those present are shareholders.

Independent directors are therefore pivotal in keeping everyone focused on just wearing the director hat well.

Turn risks into opportunities

Risk is inherent in every aspect of being in business. We cannot escape it, yet we can learn to mitigate the likely risks we face. Directors on a board should take this one step further – by finding ways of turning risks into opportunities. Perhaps a key risk for you is the availability of qualified and experienced employees.

A board might look at this risk and see the opportunity inherent in establishing a learning academy as a means of taking control over the quality and availability of critical human capital, which could even become an additional profit generating business in the short-term to medium-term.

Learn how to identify the right opportunities

Entrepreneurs tend to excel at drumming up new ideas and opportunities, yet they struggle to choose the right opportunities in the context of limited time and resources. The board of an SME or privately-held company adds value to shareholders by establishing a framework to separate the ‘wheat from the chaff’.

This accelerates the growth in value by choosing the right path at the right time and keeping the entrepreneur ‘on track’.

Never underestimate organisational culture

As Peter Drucker says, “Culture eats strategy for breakfast.” The best business model and strategy can all be for nought if the culture of the company is toxic or undermines the promise of the enterprise.

Directors on a board should never underestimate the importance of the collective values and behaviours of its team and how this directly enhances or destroys shareholder value.

Related: Today’s Incentives, Tomorrow’s Leaders

Address the ‘elephant in the room’

And lastly, SMEs and privately-held companies are renowned for avoiding the tough conversations at a board or executive level, especially when there are personal relationships between shareholder-managers.

In wearing the director hat well, supported by candid independent directors, massive value can be quickly unlocked through decisively acting on the long-unaddressed issues that drain all the energy out of the team.

In short, directors have an absolute role in ensuring value creation for shareholders. However, this does not happen by accident, it happens by design. Have you designed your board to achieve this?

Carl Bates is a global entrepreneur, speaker, author, mentor and director. Currently based in South Africa, he is a dynamic entrepreneur from New Zealand who guides small to medium businesses to achieve Extreme Business Success.

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If You Want Scale, Fail Fast And Learn Quickly

Mindset, focus and an understanding of scale are essential if you want to build a highly profitable, growing business.

Matt Brown

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“The secret to scaling a business is increasing revenues without incurring a corresponding increase in operating costs,” says Tom Asacker, author of The Business of Belief, Opportunity Screams, A Little Less Conversation and A Clear Eye for Branding, all groundbreaking books that redefine business and communication for the new age of abundance. “The single most important challenge is to have a deep understanding of your value creation and customer attraction and retention process, as well as how the company will ultimately make money over time through the unique realisation of that process.”

According to Howard Sackstein, founder of Saicom Voice Services, scale used to be measured by the number of people you employed or the number of branches you opened. “Today, these questions have become irrelevant,” he says.

howard-sackstein“When Whatsapp was sold for $19 billion the business had only 55 employees servicing 450 million users who were sending 34 billion messages a day – that’s a tiny company with enormous scale. So, today scale has come to mean something very different. In the new economy, scale is about scalable technology, how do we build software and apps that can cater for a billion users? The ideas of lots of employees and lots of offices has become old fashioned.”

The problem is that scale comes with costs and that’s why money is often the enemy of entrepreneurship. “Many of the great businesses of the new economy all began in garages, a small group of people, each with real skills each trying to bootstrap an idea to see if it worked,” continues Howard.

Related: Do You Have That 1 In 100 Business That Can Scale And Land An Investor?

“Often people go looking for funding; there’s a problem there too though – they scale too fast once they receive the cash and ultimately they fail because they have too much money. Entrepreneurs need to start small and if they fail they must fail fast. They need to test the market and grow incrementally to prove their idea. Once the idea has achieved a degree of adoption and has ‘crossed the chasm’ of technology adoption, only then can you start thinking of scale. And today scale means few costs, few employees, and tech that can scale to a mass market.”

Your Mindset is Everything

Your mindset while scaling is critical. “Value creation, customer attraction and your retention process are the result of every decision you make as an entrepreneur,” says Tom. “Your mindset shapes how you make these decisions.

“Every rand spent should be to add value in the eyes of the customer, or to improve the process that delivers that value, through automation, distribution, channel partners and so on.

“If businesses aren’t hyper-focused on adding value and deepening relationships with customers, someone will come along who will. If that happens, whether or not that process produces rapid growth is beside the point.”

Howard believes that follow-through is also essential. “So many people really want to build empires,” he says. “But how do you measure your success? Is it the number of employees you have, the number of companies, your disruptive influence on the market, revenue or actual profitability?

“You really need to decide this up front and that will affect your strategy. I probably have an old school mentality, but for me profit is everything. I don’t really understand the idea of focusing on scale with no business model in the hope that on an exit someone will find value. I know that’s a common idea in the tech world and you could get lucky by following it, but I think there are few people with that degree of luck – build for profit and sustainability, build as lean as possible and keep your eye on the actual ball.”

Related: What’s Stopping Your Business From Growing?

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Do You Have That 1 In 100 Business That Can Scale And Land An Investor?

Only 1% of businesses are investable, mainly because that’s how many businesses can 10x their growth. There’s an art to scaling, and it starts with you.

Matt Brown

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Only one in every 100 applications typically receive funding from venture capitalists. All 100 applicants believe their businesses are scalable and worthy of funding – and yet only 1% actually close investment deals.

“Most entrepreneurs radically overestimate their prospect of success and scalability,” agrees Jason Goldberg, founder, and CEO of 10X-e and co-founder of Edge Growth.

“If you really want to scale your business, you need to know that you are absolutely obsessed with solving a problem that hasn’t been solved before – so obsessed that you wake up at night with solutions buzzing around your head; so obsessed that your mind is always on the problem you’re trying to solve. The reality is that hunger is an incredibly important success factor – hunger, the hours you’re willing to put in and your level of intensity. How far are you willing to go and how many obstacles will you overcome?”

Related: What’s Stopping Your Business From Growing?

With this in mind, Jason and Vuyo Tofile, CEO of Entbanc Group, a fintech and digital support services firm share their top 3 secrets of scale.

1. You need to shift into a ‘scale’ mindset

Jason-Goldberg

Start-up entrepreneurs are focused on the hustle: More work, more energy, more sales. These are all important factors in building a business, but scaling a company requires a different focus. “Scaling up is all about architecting an enterprise and strategically putting in place the building blocks that will move you from working primarily in the business to working on the business,” says Jason.

“You need to minimise the work in the business so that you can work on the business and build a great company.”

This is easier said than done though. Often the biggest stumbling block to a company’s ability to scale is the founder. “The company founder or owner’s inability to really focus on solving an initial problem for specific target market, understanding what their business really does and is offering, and finally how to truly replicate that service or offering can be major barriers to growth, and they all lie with the entrepreneur,” says Vuyo.

The lesson is clear – you can hustle and make sales without clear structures and strategies in place, but that won’t get you to scale.

“A lot of entrepreneurs love the innovative and creative mind space of start-ups as well,” adds Jason, “which is great, but scaling is all about executing all those great ideas that you innovation and creativity helped you to come up with. If you can’t do that, you’ll never be able to scale.”

“Having the ability to execute on growth is critical,” agrees Vuyo. “Execution of the vision is far more important than having a strong vision. Vision without execution is meaningless.”

2. Get the right team in place

According to Vuyo, if you want to scale your organisation, you need the right people on board – and this too is a crucial skill the founder needs to foster. “You have to be able to build an effective team around the business,” he says. “You don’t need to be able to do everything yourself – in fact, in order to scale you mustn’t – but you do need to know who you need and where you need them.”

For Jason, the lead indicator of your ability to scale is whether or not you can build a sales organisation. “Can you shift from selling to becoming the architect of an organisation that sells for you?” he asks.

Alongside this ability is shifting from hiring who you can afford to who you need. “Start-ups hire talented ‘jack of all trade’ young high potentials (who are typically overworked and underpaid). This is an essential start-up tactic. Mature firms in scale-up mode need seasoned leaders who can take each part of your business to the next level.

“Having an awesome team is your most important ingredient of success. Every senior person needs to be pretty impressive in general, spectacular in their roles, and work well as a team.”

3. Understand if your business is scalable

Not all businesses are scalable – and that’s fine. Not all entrepreneurs want to scale their businesses either. However, if you do want to scale, it’s important to know if your business falls into the scalable or un-scalable category.

“There are three basic rules of thumb,” says Jason. “First, how big is the problem you’re solving? Is this a problem that lots of people have and are willing to spend money on the solution?

“Second, what kind of problem is it? Is your solution a vitamin pill or a headache pill? How does your client feel if you don’t exist? You’re not scalable if they don’t have a painful experience without you. In other words, do they have a headache if they haven’t seen or heard from you today?

Related: Is Your Business Ready To Be Funded?

“Finally, how different is the value you bring to your client than all their other alternatives? You need to be ten times more valuable than your competitors. If you’re not, there’s too much competition, and you’re unlikely to 10x the business.”

Vuyo agrees. “Scale is all about having a service or product that is of real, tangible value to your customer. All the resources and brand equity in the world won’t help you scale if you aren’t providing real value.”

Secrets of Scale Event #3

PART 1 – BUILDING THE AEROPLANE

This segment will be the majority of our focus and will cover practical “how to steps” for scaling your business. We’ll be revealing how to design a scale ready business and walk you through common pitfalls that all entrepreneurs will encounter as they “build the aeroplane” and how to avoid them. We’ll also reverse engineer how to design a scale ready business from a 150 strong team all the way down to a 5 person team.

PART 2 – BUILT FOR WINTER

This segment is all about how to ensure that you remain profitable as you scale. We’ll unpack how to bring different revenue streams, partnerships and products/services to together to help you weather any storm.

PART 3 – SCALE BLUEPRINT

In this segment we’ll explore the systems that can help you scale, how to automate repetitive processes and outsource non-essential tasks and how to design a business that makes more money while you sleep than when you’re awake.


Listen to the podcast here:

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Increase Profitability

Growing Your Revenue In A Slow Economy

The dos and don’ts for your business.

Greg Morris

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The most dangerous counter to the unpredictability of any economic crisis is… doing nothing. The same everyday attitude can ruin any company. But what’s the next most dangerous behaviour? Clumsy or uncontrolled reactions.

What is needed, therefore, is finding and embracing the less common but noteworthy opportunities that unveil themselves during slow economic times.

You can do this in two stages.

  1. First: steady your company by sheltering it from associated dangers and make sure that it has the cash flow needed to stay afloat during the crisis.
  2. Only once you’re confident that you’ve adequately prepared for the worst, should you approach the second stage: looking for ways to grow your revenue over time.

Related: Why Bartering Can Be Your Untapped Revenue Source

An article by Gulati, Nohria & Wohlgezogen in Harvard Business Review (2010), indicates that, “…a subset that deploys a specific combination of defensive and offensive moves has the highest probability of breaking away from the pack. These companies reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest comprehensively in the future by spending on marketing, R&D, and new assets. Their multipronged strategy…is the best antidote to a recession.”

Stage 1: Steady your company

In the first stage of stabilising your business in a recession (especially one that could continue to slide), take the time to methodically evaluate its weak points.

  1. Test out a few economic scenarios both at department level and across the broader business. Assess how each might impact your organisation, and cautiously calculate the financial effects. Then find ways to reduce your exposure. Make sure that you have sufficient cash flow and access to capital, to sustain your financial stability.
  2. Make a strong and targeted effort to lower expenses and boost efficiency. But, while it’s imperative to be fast, it’s also essential to have a rational, cautious, and well-thought-out plan. Don’t make radical cuts that will damage your business in the long term – by, for example, risking valuable future opportunities.
  3. Remember that cutting expenses boosts profits, but only if the sales price and the quantity of sales stay the same. If a reduction in expenses affects the quality of your products, you may need to consider lowering your price to maintain sales. This is critical as it can cancel out any potential returns and ultimately end in a loss.
  4. As your customers’ needs change, re-evaluate your pricing strategies and product mix. This may mean raising prices through effective branding, like Coca-Cola and Sony have done. These organisations have such strong brands that they can get away with charging higher prices than many of their competitors… all while growing their market share and preserving quality status, even during recessions.
  5. You can sell off non-core businesses and peripheral (or poorly performing) operations. Don’t hold out for ‘better times’ in the hope that you’ll secure the price you would’ve gotten when the economy was stronger. If the company isn’t essential to your goals and it increases your risks in the recession, sell it now.

Related: 5 Strategic Steps to Help You Double Your Revenue Next Year

Step 2: Prepare for the future

  1. A common challenge that many businesses encounter is inflexible or obsolete business models. Reconsider yours. Innovation in technology and media is constant, yielding a perpetually evolving business landscape. The traditional publishing industry is a perfect example of this.
  2. Do things differently and don’t be afraid to stand out by marketing your product in a novel way. Take Jordan’s Furniture: a US furniture outlet that sells more furniture per square foot than any of its competitors thanks to a strategy called “shoppertainment”.
  3. Consider pursuing transformative opportunities like mergers and acquisitions. If your business is relatively strong financially and strategically, a recession can be a rare opportunity to boost your competitive position. According to a Harvard Business Review article by Rigby and Harding (2009), “…companies that acquire in bad times as well as in good outperform boom-time buyers over the long run.”

Bottom line? Businesses that can find calculated and clever ways to balance lowering expenses to endure today and carefully planning and investing to grow tomorrow are most likely to survive and thrive after a period of economic recession.

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