Let’s start with a key question: what are you building your business for? What’s in it for you? This is a choice between two clear alternatives. You are either building it with an aim to eventually sell it at a great capital gain, or you are building it because you never want to do anything else. There is no in between. If you intend to ever sell your business, then you are planning to sell. You need to think about that choice deeply and be very clear in your mind about the implications of each option.
You may be very content with a very small successful niche company that you don’t want to grow. You are probably doing really well already in what you want to achieve. There are many businesses like this, partners who have been running a restaurant or a small factory or a dry cleaning shop for 20-30 years. This is a success to admire, there are not many businesses around in the tech industries that have been able to achieve 20 years, and where the owners are successful and happy. These people don’t need this article, and with respect, it isn’t meant for them.
But if you are building your business with the intention of one day selling it, then decisions you make now will decide how successful that sale will be. The sale price you get will depend on the criteria of the buyer, not on how you view your business. You need to know what those elements are and start building them into your business now.
There are certain minimum requirements that a buyer must gain from buying your business before s/he considers the cream in your offering. These include:
- Competitive edge
- Business model
- Cash flow
- Customer base
- Legal structure
- Business team
- Financial backbone
There’s more. There’s also risk management, contract documents, marketing, partner relationships including suppliers and government. And when you’re ready to sell, there’s sales process, putting together a deal team, finding a broker, and the sale itself. But that list above contains the critical elements in terms of preparing your business for sale at an optimum price. Let’s have a look at one of them in more detail.
Does your business have the ability to grow? A buyer will want to see the potential that his/her investment in your lusty little plant can multiply. There are three requirements for achieving scale: repeatable, teachable and gaining market share by giving customer value.
“If you cannot measure, you cannot repeat. If you cannot repeat, you cannot scale.”
You need repeatable sales processes, repeatable production processes that can quickly scale up to meet increasing demand, and repeatable marketing processes that support your goals. You need for these processes to be repeatable by ordinary people with average skill levels because you can’t scale if everyone has to be fantastic at what they do; there just isn’t enough of those very clever and talented people to go around.
How do you know which processes to repeat? You have to measure what you do and test options. Which options to test? The ones most important to your business are those that affect growth and scale. Easy choice, isn’t it?
How can you ensure a repeatable process? Write it down, document it, observe it and refine it. Don’t expect you or your staff to remember it from just a spoken requirement. Common to ensuring repeatable processes is an Operations Manual and don’t forget team meetings to review it and practice them. Robust systems are vital, but so are people actually following them. “It’s important to constantly strive to improve and maintain consistency in all aspects of your business,” says Gianpaolo Federici, an Australian entrepreneur. “Eventually you pull together a very tight business that rewards you big time.”
The process is about the little things done right. One retailer used colored stickers on price tags to indicate the sale discount percent. There were signs up in the shop to advise customers of the meaning of the colors but not at the cash register, so the sales staff were making mistakes trying to remember which color meant which discount. Of course, customers were cranky when the discount given on the sales receipt was less than what was advertised in the shop. The error was picked up through the shop’s measurement process, of checking actual discounts given against the standard for each item. Putting a list of colors and their discounts in writing alongside the cashier solved the problem.
That is an improved process example, taking a customer inquiry and adding value for the customer. Note that the process also gives a tool to the staff, the ability to perform the lookup to see what is available. Now the staff person and the tool combined become a capability.
Another key benefit from a consistent process is giving your customers a consistent experience. If your customer’s first visit has 3 benefits in service and the next visit only 2, then you have deprived your customer of an expected service and this is an emotionally poor experience. Same if you give one customer a discount and then the next one gets none. Hello! Customers talk to each other, either as friends or through social media. So don’t shoot yourself in the foot with inconsistent service or product quality.
Believe it, it is these simple little processes are done right that makes such a difference to your business performance and profitability. The logic chain is along the lines of:
Supply reliability leads to increased customer satisfaction, which leads to increased positive word of mouth, which leads to increased market share, which leads to increased profitability.
So when you have a standard defined you can then measure actual performance – how well you are making that product to the standard – and keep refining and adjusting to build your supply reliability. Zero defects, zero deviation.
So let’s repeat, you need to be able to measure performance to choose the best process and capability set, and you need to repeat the process over and over again. “If you cannot measure, you cannot repeat. If you cannot repeat, you cannot scale.”
Let me know an aspect of developing a successful business you would like me to write about.